OECD Projects Indonesia's Economic Growth at Only 4.7% This Year
The Organisation for Economic Co-operation and Development (OECD) has once again slashed its economic growth projection for Indonesia amidst global energy price pressures and increasing policy uncertainty resulting from the Middle East conflict.
In the June 2026 edition of the OECD Economic Outlook, Indonesia’s economic growth is expected to be 4.7% in 2026, down from 4.8% in the previous report. The OECD anticipates that economic growth will strengthen again to the 5% level in 2027 once external pressures begin to subside.
The OECD assesses that rising energy costs and global uncertainty will weigh on household consumption and investment, alongside a weakening domestic labour market.
“Rising energy costs and policy uncertainty are expected to weigh on consumption and investment amidst a weakening labour market,” the OECD wrote in its report.
Despite the slowdown, the Indonesian economy is considered more resilient than many other developing nations due to its lower dependence on energy imports from the region.
The OECD noted that the Indonesian economy actually began 202t6 quite strongly. Gross Domestic Product (GDP) grew by 5.6% year-on-year in the first quarter of 2026, supported by domestic demand and a 21.8% surge in government spending.
Household consumption and investment also remained solid after monetary policy easing throughout 2025 encouraged lower borrowing costs. However, several recent indicators have begun to show a weakening economic momentum.
Retail sales recorded a 1.9% year-on-year decline in April 2026. Consumer confidence has also begun to weaken, particularly regarding employment expectations.
On the other hand, inflationary pressures are starting to rise due to the surge in global energy prices. The OECD expects Indonesia’s inflation to rise to 3.4% in 2026 from the previous 1.9% in 2025. This increase is driven by the secondary effects of global energy prices on domestic prices, even though the government continues to maintain subsidised fuel prices.
The organisation assesses that Indonesia is relatively more resistant than other Asian nations because it remains a net exporter of clean energy when accounting for coal and gas exports. This condition makes the impact of the Middle East conflict’s terms of trade on Indonesia more limited.
“For Indonesia, the impact of changes in global trade policy due to the developing conflict in the Middle East is relatively limited,” the OECD wrote.
Nevertheless, the OECD warned that the risk of production cost pressures remains high due to the surge in fertiliser and industrial raw material prices in the global market. Uncertainty regarding external demand also continues to shadow Indonesian exporters, even as United States tariff policies begin to ease.
The government is deemed to have responded to global energy pressures by freezing subsidised fuel prices, accelerating the implementation of B50 biofuel, and implementing a one-day-per-week work-from-home policy for civil servants to save energy consumption.
The OECD expects Indonesia’s fiscal policy to remain expansionary in 2026. The increase in energy subsidy spending and the free meal programme is expected to be only partially offset by tax increases and cuts in other expenditures.
The government’s fiscal deficit is projected to be at the 3% level of GDP in 2026, while the government debt ratio is set to increase to 40.7% of GDP. At the same time, the current account deficit is expected to widen to 0.7% of GDP.
The OECD also believes that the efficiency of government spending can still be improved, particularly through more targeted energy subsidy distribution to vulnerable groups.
“Public spending efficiency can be increased through more targeted energy subsidy distribution to vulnerable households,” the OECD wrote.
In the monetary sector, the OECD expects Bank Indonesia to maintain a moderately tight policy until the end of 2026 to maintain inflation and exchange rate stability. The risk of imported inflation is deemed to be increasing after the Rupiah depreciated against the US Dollar since the beginning of the year.
In addition to energy issues, the OECD also highlighted the importance of strengthening the governance of the Daya Anagata Nusantara Investment Management Agency (Danantara) to ensure its economic impact is optimised. The OECD considers strengthening Danantara’s governance essential to maximising the contribution of investment to national economic growth.