Indef: GDP Growth Could Slow if Middle East Conflict Persists

Jakarta (ANTARA) - The Institute for Development of Economics and Finance (Indef) estimates that Indonesia’s economic growth could slow by 0.21 per cent if the Middle East conflict, accompanied by a surge in global energy prices, persists until the end of this year. Indef Programme Director Eisha M. Rachbini stated during a seminar in Jakarta on Thursday that the projection is based on the results of a computable general equilibrium (CGE) model simulation developed by the Indef team to measure the impact of global economic shocks on the Indonesian economy. In the first scenario, a prolonged Middle East conflict extending to the end of 2026 triggers a spike in global energy prices, with the assumption that world oil prices rise 30 per cent from a baseline of US$70 per barrel. Under this scenario, the consumer price index (CPI) is expected to increase by 0.28 per cent. At the same time, real wages are projected to fall by 0.26 per cent, exports to contract by 2.44 per cent, and imports to surge by 7.80 per cent due to increased energy needs and costs. ‘When oil prices rise, purchasing power is eroded, inflation increases, and real wages fall. Exports will also decline because imports will increase significantly. Although we also have export commodities that rise, there is a contraction from very high fuel import purchases,’ she explained. Furthermore, investment is estimated to increase by 1.20 per cent, but economic growth will still slow by 0.21 per cent. The second scenario depicts an economic slowdown in key partner countries. Assuming import demand from Indonesia’s export destination countries falls by 5 per cent, the CPI is projected to rise by 0.11 per cent, real wages to fall by 0.29 per cent, and investment to increase by 0.36 per cent. On the other hand, exports are projected to experience the deepest decline, at 5.05 per cent, while imports decrease by 0.23 per cent. This condition would cause economic growth to contract by 0.24 per cent. In the third scenario, involving trade fragmentation and global supply chain disruptions due to rising tariffs and non-tariff barriers, the CPI is estimated to rise by 0.18 per cent and real wages to fall by 0.23 per cent. Investment would be nearly stagnant, with an increase of only 0.07 per cent, while exports and imports would fall by 1.16 per cent and 0.30 per cent, respectively. In this scenario, economic growth is estimated to slow by 0.17 per cent. ‘We conclude that if geopolitical risks, supply chain disruptions and fragmentation, and climate change are not anticipated with adequate economic fundamentals and sound policies, this will result in a contraction in growth,’ Eisha said. Given these various challenges, Indef projects that Indonesia’s economic growth in the second quarter of 2026 could potentially slow to around 5 per cent year-on-year (yoy), in line with the normalisation of post-Ramadan consumption, pressure on energy and food prices, a weakening rupiah, and rising production costs.