Current Account Deficit Hits $12.5 Billion, Is Indonesia's Economy Still Fine?

Jakarta, CNBC Indonesia - Indonesia’s current account deficit swelled in the second quarter of 2026, reaching US$12.5 billion, equivalent to 3.3% of gross domestic product (GDP), up from a deficit of US$3.6 billion, or 0.97% of GDP, in the first quarter of 2026.

Economists believe the current account deficit (CAD) condition is caused by Indonesia’s external economic activity beginning to come under pressure, particularly from the trade balance side.

Bank Mandiri Chief Economist Andry Asmoro said the deterioration was driven by a widening oil and gas trade deficit, a narrowing non-oil and gas trade surplus, and a swelling primary income deficit.

“The trade balance weakened amid high oil imports and strong domestic import demand,” said the man familiarly known as Asmo on Friday (21/8/2026).

He said the oil and gas trade deficit widened in line with rising oil imports amid high global oil prices. Meanwhile, the non-oil and gas trade surplus narrowed, reflecting increased non-oil and gas imports to meet still-strong domestic economic activity.

“Bank Indonesia assesses that several factors causing the widening current account deficit are temporary in nature,” said Asmo.

He also emphasised that primary income added further pressure on the current account. The primary income deficit increased in line with rising primary income payments, while the secondary income surplus was relatively stable compared with the first quarter of 2026.

Those two pressures, Asmo said, were actually offset by significantly improved capital and financial transactions. The capital and financial account recorded a surplus of US$12.0 billion in the second quarter of 2026, reversing a deficit of US$4.8 billion in the first quarter of 2026.

Direct investment recorded a higher surplus, supported by positive investor perceptions of Indonesia’s economic prospects and domestic investment climate. Portfolio investment also recorded a higher surplus amid more attractive yields on domestic financial instruments, while the deficit in other investments narrowed.

For Asmo, with these developments, the current account deficit going forward will tend to narrow, supported by improving export prospects amid rising global commodity prices, including Indonesia’s main export commodities, as well as the positive impact of the reduction in US reciprocal tariffs.

“Meanwhile, the capital and financial account is expected to continue recording a surplus, supported by continued foreign capital inflows, attractive domestic yields, and positive prospects for the Indonesian economy,” he stressed.

Potential for a Wider Deficit

A different view was expressed by Permata Bank Head of Macroeconomic and Market Research, Faisal Rachman. He said Permata Bank’s economics team actually expects the current account deficit to potentially widen going forward.

“We expect Indonesia’s CAD to widen in 2026, driven by higher imports under the government’s pro-growth agenda as well as weakening exports amid sluggish global demand and ongoing geopolitical and trade tensions,” said Faisal.

He even considers the swelling CAD to have the potential to pressure Indonesia’s balance of payments, which actually improved in the second quarter of 2026, from a deficit of US$9.15 billion to US$880 million.

“Especially because capital inflows in financial transactions remain under pressure amid high global uncertainty that triggers a risk-off tendency,” he said.

From the current account side, Faisal sees a risk of decline in Indonesia’s goods balance, mainly driven by the government’s growth-oriented policy agenda.

This policy is expected to maintain domestic demand and drive higher import growth. At the same time, weakening global demand, particularly from China, as well as ongoing geopolitical tensions in the Middle East and the global trade war could pressure export performance.

“These developments also have the potential to disrupt global supply chains and further limit export growth. We will continue to monitor these dynamics and assess their impact on Indonesia’s external position,” he said.

Therefore, Faisal said, Permata Bank’s economics team projects the CAD will swell to 2.5-3.0% of GDP in 2026, from 0.11% of GDP in 2025.

The projection also takes into account the financial transaction side, starting from portfolio capital flows which are expected to remain vulnerable to global and domestic uncertainty, although there has been a slight improvement in investor sentiment following MSCI’s decision to maintain Indonesia’s classification as an emerging market, as well as S&P’s decision to maintain a stable outlook.

Global pressures, he stressed, also remain a risk to the CAD condition, especially because uncertainty surrounding geopolitical developments in the Middle East continues to overshadow the direction of the Fed’s policy, given that high energy prices could keep US inflation above the 2% target for a longer period.

This could strengthen risk-off sentiment and limit capital inflows to developing countries, including Indonesia. Domestically, concerns about Indonesia’s twin deficits have also increased, reflecting the risk of a wider CAD and a larger fiscal deficit under the government’s growth-oriented policy framework as well as increasing reliance on fiscal policy as the main engine of growth and shock absorber.

“Amid these conditions, investor sentiment is expected to remain cautious. Therefore, portfolio investment inflows are projected to remain limited, while the Rupiah exchange rate has the potential to remain volatile,” he said.