LPEM FEB UI Forecasts Indonesia's Q2 2026 Economic Growth at 4.8 Percent
The Institute for Economic and Social Research at the University of Indonesia’s Faculty of Economics and Business (LPEM FEB UI) has forecast that the country’s gross domestic product (GDP) will grow by 4.80 percent year-on-year (yoy) in the second quarter of 2026. For the full year, LPEM FEB UI projects economic growth of 5.00 percent (yoy), within a range of 4.95 to 5.05 percent. Economist Teuku Riefky explained that the sub-5 percent quarterly growth is partly due to a high base effect from the 5.12 percent growth recorded in Q2 2025, as well as the absence of significant seasonal drivers, with Ramadan and Idulfitri having fallen in the first quarter of 2026.
External pressures are also weighing on the economy. High global energy prices and a weakening rupiah have fuelled imported inflation, raising production costs. The government’s decision to increase the price of Pertamax fuel has further eroded household purchasing power. This is reflected in the Consumer Confidence Index (IKK), which declined steadily throughout Q2 2026, from 123.0 in April to 120.9 in May and 117.8 in June, averaging 120.6 for the quarter, a drop of 4.4 points from the previous quarter.
Headline inflation rose from 2.42 percent (yoy) in April to 3.08 percent in May and 3.34 percent in June, driven largely by a spike in volatile food prices. On the fiscal front, state spending growth decelerated sharply to 7.04 percent (yoy) in Q2 2026, with total expenditure reaching Rp841.0 trillion. In contrast, state revenue collection outpaced spending, leading to a budget surplus. A significant driver of expenditure was a 90.38 percent surge in goods spending, largely attributed to the distribution of the Free Nutritious Meal (MBG) programme. Meanwhile, subsidy and compensation spending contracted by 11.40 percent (yoy).
Indonesia’s external trade position weakened, with the trade balance swinging to a deficit of USD 1.6 billion in May 2026 from a surplus of USD 0.09 billion the previous month. This deterioration was primarily caused by a sharp increase in oil and gas imports, which exceeded USD 20 billion in both April and May, while export values declined from USD 25.3 billion in April to USD 23.2 billion in May. On a more positive note, investment realisation reached Rp511.8 trillion in Q2 2026, accounting for 25.1 percent of the annual target and growing 7.1 percent year-on-year, with a balanced contribution from domestic and foreign direct investment.