Indonesia Maintains Momentum Amid Global Economic Slowdown

The global economy is once again entering a period of deep uncertainty. After years of striving to recover from the impact of the COVID-19 pandemic, the world is confronted with new shocks arising from escalating geopolitical tensions in the Middle East. The conflict not only affects regional stability but also shakes energy markets, international trade, and the global financial system. In its June 2026 Global Economic Prospects report, the World Bank estimates that global economic growth will reach only 2.5 percent in 2026, down from 2.9 percent in 2025. Excluding recessionary periods, this figure represents the slowest growth rate since the pandemic, indicating that the global economic recovery is once again losing momentum.

The slowdown is triggered by a combination of mutually reinforcing factors. Disruptions to energy distribution from the Gulf region are driving up the prices of crude oil, natural gas, and fertilisers, which are critical components of global economic activity. Simultaneously, resurgent inflation is forcing central banks in various countries to maintain high interest rates for longer than anticipated. Increasingly expensive financing costs are subsequently suppressing investment, slowing business expansion, and reducing public consumption. These conditions create almost uniform pressure on both developed nations and developing countries dependent on energy imports.

Amid this deteriorating global situation, Indonesia is demonstrating relatively strong resilience. The World Bank projects that the Indonesian economy will still grow by 5.0 percent in 2026, before rising to 5.2 percent in 2027 and 2028. This projection is significantly higher than the global average growth of 2.5 percent and the average for developing countries, which is estimated at only 3.6 percent for the same year. Even as most regions face downward revisions to their growth forecasts, Indonesia is still able to maintain an expansion rate of around five percent.

This position indicates that Indonesia’s economic structure possesses a better degree of resilience than many other countries. Unlike nations heavily reliant on manufacturing exports or energy imports, Indonesia’s growth is still supported by substantial domestic demand. Household consumption, private investment, infrastructure development, and service sector activity remain the primary engines of national economic growth. This diversification of growth sources means that external shocks do not immediately hamper economic activity in a significant way.

Nevertheless, Indonesia is not entirely immune to international turmoil. The World Bank estimates that the average price of Brent crude oil will reach US$94 per barrel throughout 2026, an increase of approximately 36 percent compared to the previous year. Furthermore, the global energy price index is expected to surge by nearly 40 percent, while the overall commodity price index is projected to rise by almost 29 percent compared to earlier forecasts. These price increases will raise the costs of transportation, logistics, industrial production, and even food prices through higher fertiliser and distribution costs.

For Indonesia, this pressure presents two contrasting sides. As a producer of various commodities, rising prices for some primary products can increase export values and state revenues. On the other hand, Indonesia still imports crude oil and certain energy products, so the surge in global oil prices will increase the burden of energy subsidies and import costs. If high energy prices persist for an extended period, the government’s fiscal space could narrow, potentially affecting its ability to finance development.

Pressure also emanates from the international trade sector. Although the World Bank notes that investment in artificial intelligence (AI) is still supporting some global trade activity, geopolitical conflict is making the flow of strategic commodity trade more vulnerable. Disruptions to distribution through the Strait of Hormuz, for example, are hampering global energy supplies while simultaneously increasing international shipping costs. Countries with close trade ties to the affected region must bear higher logistics costs, while market uncertainty causes businesses to tend to postpone investment expansion.

Under such conditions, domestic economic stability becomes a decisive factor. Indonesia benefits from a large domestic market with a population exceeding 280 million people. When external demand weakens, domestic consumption can still sustain economic activity. Additionally, ongoing infrastructure development over the past several years has improved logistics connectivity and increased the efficiency of goods distribution between regions. These factors serve as crucial buffers so that the global economic slowdown does not directly translate into a national economic slowdown.

However, a greater challenge originates from the fiscal side. In the same report, the World Bank emphasises that government debt in many developing countries has reached its highest level in modern history. This increase in debt is driving up government bond yields, making borrowing more expensive. As the burden of interest payments grows, state budgets that should be used for building infrastructure, improving the quality of education, strengthening health services, or encouraging productive investment are instead absorbed by debt obligations. This condition represents one of the main challenges that developing countries must face in the coming years.

For Indonesia, prudent fiscal management is an important asset in maintaining investor confidence. The government’s debt ratio is relatively lower compared to many peer countries.