Indonesia's Economy Projected to Grow Around 5 Percent Through Year-End

Jakarta (ANTARA) - Permata Bank Chief Economist Josua Pardede stated that the Indonesian economy is projected to remain solid, growing at around 5 percent in the second half of 2026, despite facing various global and domestic pressures. Josua noted that Indonesia’s economic resilience remains quite strong amidst rising global uncertainty, though several risks must be anticipated to maintain the growth momentum. “We view economic growth quite objectively and conservatively. This means that in the third and fourth quarters it will slow down, resulting in a full-year figure of 5.26 percent,” Josua said during the Permata Institute for Economic Research (PIER) second quarter 2026 economic review, attended online in Jakarta on Monday.

He outlined four global risks that could affect Indonesia’s economic prospects in the second half of 2026. First, rising geopolitical tensions, particularly in the Middle East, could drive up energy prices and increase inflationary pressures. Second, trade war uncertainty has the potential to suppress Indonesian exports while simultaneously increasing imports, which could widen the current account deficit and heighten pressure on the balance of payments. Josua also assessed that diverging monetary policy directions among global central banks represent an unavoidable risk, as differing responses to the economic slowdown and inflation could increase financial market uncertainty as well as exchange rate and bond market volatility. Meanwhile, the slowing recovery of China’s economy, especially in its property sector, poses a fourth risk, given China’s status as one of Indonesia’s main trading partners, potentially dampening global trade and demand for Indonesian commodities.

Despite these challenges, Josua believes Indonesia’s economic outlook remains relatively well maintained. Economic growth is expected to reach 5.26 percent throughout 2026, although the pace in the third and fourth quarters is forecast to ease slightly. “Next year there will also be a lag effect due to this year’s interest rate hikes. However, in 2028 it will improve slightly to 5.33 percent,” he said. On the inflation front, Josua noted that pressure is expected to increase towards the end of 2026 due to weather factors such as El Niño, but inflation is projected to ease again the following year as conditions normalise. Government fiscal policy is expected to remain expansionary to sustain economic growth, with Josua estimating the fiscal deficit at around 3 percent. In the monetary sector, PIER predicts the benchmark interest rate will remain at 5.75 percent for the next two years before entering an easing phase in 2028. The rupiah exchange rate is still expected to face pressure, with Josua forecasting it at around Rp17,900 per US dollar by the end of 2026 and around Rp17,500 per US dollar in the following two years. Given these various risks, strengthening domestic fundamentals and implementing appropriate policies are crucial to maintaining Indonesia’s economic growth at around 5 percent while bolstering resilience against external pressures.