GREAT Institute projects Indonesian economic growth at 5.3-5.6 per cent

The projection of 5.3-5.6 per cent growth represents optimism, albeit with certain prerequisites.

Jakarta (ANTARA) - The GREAT Institute has released its economic growth projection for Indonesia throughout 2026, estimating a range of 5.3-5.6 per cent.

GREAT Institute economic researcher Adrian Nalendra Perwira stated that this projection is supported by resilient domestic demand, expanding business activities, and strengthening investment, although pressures on purchasing power and global uncertainty still require vigilance.

“The 5.3-5.6 per cent growth projection is an optimism with prerequisites. We see that the foundations of growth remain quite strong, but the composition of the growth engines is beginning to change,” Adrian said in a statement in Jakarta on Sunday.

Citing the GREAT Mid-Year Economic Outlook 2026 report, titled ‘Rebuilding Confidence, Growing Optimism’, Adrian explained that while optimism regarding the Indonesian economy has a solid basis, growth within this range will not occur automatically.

“The first semester was greatly assisted by consumption and fiscal drivers. Entering the second semester, while consumption remains the foundation of growth, additional acceleration must increasingly come from investment and productive activities in the private sector,” he noted.

Indonesia’s economy grew cumulatively by 5.45 per cent in the first half of 2026. During this period, fiscal policy served as a vital cushion, with government consumption growing by 18.62 per cent compared to the same period the previous year. Household consumption also grew by 5.06 per cent year-on-year in the second quarter.

However, the GREAT Institute suggests that this consumption resilience should be interpreted with caution.

Retail sales experienced a contraction during the April-June period before being forecast to grow slightly by 0.9 per cent in July, while the Consumer Confidence Index fell from 123.0 in April to 116.8 in July. Consequently, while consumption has not collapsed, households are becoming increasingly selective in their spending.

“Because consumption contributes the largest portion to the economy, its resilience remains the foundation of our projection. However, we must not read household consumption solely through a single GDP figure. There are signals of increasing caution. Therefore, maintaining real income and employment is more important than merely driving momentary consumption,” said Adrian.

At the same time, several business sector indicators show more positive developments.

Electricity consumption in the business and industrial sectors grew by 10.04 per cent and 6.54 per cent year-on-year, respectively, while commercial vehicle sales increased by 30.12 per cent up to June.

According to Adrian, these indicators are consistent with business operational activities continuing to expand.

More significant signals are coming from investment. Realised investment in the first half of 2026 was recorded at Rp1,010.6 trillion, an increase of 7.2 per cent compared to the same period the previous year. In July, investment credit grew by 23.1 per cent year-on-year, while working capital credit grew by 11.6 per cent.

“This is what needs to be maintained in the second semester. The focus should no longer be solely on whether funds are available, but whether financing is truly translating into private capital expenditure, production capacity expansion, and job creation. The government has provided significant momentum in the first semester. Moving forward, policies need to be stronger in reducing investment barriers, providing regulatory certainty, accelerating projects, and ensuring liquidity flows into productive activities,” said Adrian.

Adrian believes the government’s role needs to shift from providing direct impulses to acting as a lever for larger economic activity.

State spending remains necessary to maintain purchasing power, basic services, and development, but the quality of expenditure is becoming increasingly important after much of the fiscal stimulus was deployed early in the first semester.

Therefore, GREAT emphasises a shift from ‘spending more’ to ‘spending better’.

Nevertheless, these prospects still face a challenging global environment.

Throughout the first semester, the average Global Economic Policy Uncertainty was recorded at approximately 68 per cent above the 2024 average, while the Geopolitical Risk Index was about 55 per cent higher.

Geopolitical risks, energy prices, tight global monetary policies, and changes in the global trade architecture remain sources of pressure for Indonesia.

Consequently, GREAT’s projection, which sits above the IMF and World Bank estimates of around 5 per cent, is not a statement that risks have passed. Instead, GREAT assesses that Indonesia has the opportunity for higher growth if macroeconomic stability can be maintained and the established domestic momentum does not lose strength.

“The first-semester growth shows that the Indonesian economy is more resilient than the impressions sometimes found in the public sphere. But resilience does not mean all problems are resolved. The next challenge is transforming that resilience into productivity, higher-quality investment, better jobs, and increased community income,” said Adrian.

According to the GREAT Institute, another equally important factor is confidence. Policy uncertainty or weakening institutional credibility can prompt households to withhold consumption, companies to delay investment, and markets to demand higher risk premiums.

Conversely, policy certainty, reliable data, and consistently functioning institutions can extend the economic decision-making horizons of both the public and the business community.

“Optimism cannot be commanded. It must be built. The government needs to maintain policy consistency, explain changes transparently, ensure data is trustworthy, and respond to criticism with improvements. If confidence is maintained, households will feel empowered to make decisions, businesses will dare to expand investment, and the market will provide greater space for the economy to grow,” Adrian concluded.