Despite Easing Middle East Conflict, BI Maintains Low 3% Global Economic Growth Forecast

Bank Indonesia (BI) has not altered its low global economic growth projection amid ongoing economic and geopolitical uncertainty. BI forecasts global economic growth to reach 3%, even as the war in the Middle East begins to ease. “World economic growth in 2026 is expected to remain low at 3.0%, followed by rising inflationary pressure to around 4.4%,” said BI Governor Perry Warjiyo during a virtual press conference for the June 2026 Board of Governors Meeting on Thursday (18/6/2026). Perry stated that global uncertainty due to the Middle East war remains high, although it has slightly subsided following an interim deal between the United States (US) and Iran on 14 June 2026. “The war that has been ongoing in the Middle East since late February 2026 has caused disruptions to production, distribution, and international trade supply chains, and has lowered global economic prospects,” he explained. He noted that several central banks have begun raising their policy interest rates in response to rising inflation, which is predicted to reach around 4.4% in 2026. The US monetary policy rate, the Fed Funds Rate, is currently maintained at 3.75% and is likely to increase in the future alongside higher US inflation prospects. US Treasury yields remain high, reaching 4.49% (10-year tenor) and 4.18% (2-year tenor) on 17 June 2026, driven by a widening fiscal deficit. Furthermore, the US dollar index against advanced economies (DXY) and developing economies (ADXY) remains strong. As a result, global investors’ preference for placing funds in emerging markets (EMs) has not yet strengthened, with capital shifting to safe-haven assets in advanced economies. “Going forward, the development of negotiations between the US and Iran regarding a conflict resolution agreement in the Middle East is expected to remain dynamic, necessitating vigilance as well as strengthened fiscal and monetary policy responses and synergy to reinforce external resilience, maintain stability, and drive domestic economic growth,” he concluded.