Economist says government spending directly influences domestic demand
The multiplier effect of government spending in the first quarter of 2026 will have a direct impact on domestic demand.
“The multiplier effect of government spending in the first quarter of 2026 is quite strong because the type of spending directly affects income and domestic demand,” said Josua Pardede when contacted by ANTARA from Jakarta, Friday.
He explained that the type of government spending in January-March 2026 can have a direct impact on domestic demand because it is channeled in the form of the disbursement of Eid bonuses for civil servants, military personnel, police officers, and pensioners.
This increases the disposable income of the community, thus encouraging household consumption during Ramadan and Eid al-Fitr.
Josua said that government spending is also realized through the Free Nutritious Meal Program, which encourages demand in the food chain, catering, logistics, agriculture, animal husbandry, fisheries, and small businesses around the Nutritional Fulfillment Service Units.
There are also social assistance programs, such as Non-Cash Food Assistance and Assistance for National Health Insurance contributions, which maintain the purchasing power of vulnerable groups and prevent a decline in consumption.
In addition, government spending is also used as capital for the construction of roads, irrigation, and communication networks, as well as the procurement of equipment and production machinery, which provides impetus to the construction sector, building materials, trade, transportation, and even the manufacturing industry.
“Therefore, the impact does not stop at government spending figures, but spreads to household consumption which grew 5.52 percent, investment which grew 5.96 percent, and production activities in several major sectors,” he said.
Josua said that the increase in government spending in the quarter is closely related to the increase in government consumption expenditure in that period, as reflected in the calculation of economic growth in the first quarter of 2026.
He said that the Financial System Stability Committee (KSSK) recorded that the realization of state spending in the first quarter of 2026 reached IDR 815.0 trillion or grew 31.4 percent year-on-year, consisting of central spending of IDR 610.3 trillion and transfers to regions of IDR 204.8 trillion.
Meanwhile, the Central Bureau of Statistics (BPS) reported an increase in government consumption expenditure in Gross Domestic Product (GDP) by 21.81 percent year-on-year.
He said that the increase in government spending helped the national economy grow 5.61 percent year-on-year in two ways.
First, directly, namely government spending is included as one of the components of GDP. Second, indirectly, namely government spending encourages household income, demand for goods and services, retail spending, logistics, construction, and the activities of government suppliers.
“With a share of government consumption of around 6-7 percent of GDP and a growth of 21.81 percent, its direct contribution to growth can be estimated at around 1.3 percentage points, before taking into account the follow-on effects on household consumption and investment,” said Josua.