World Bank Cuts Indonesia's 2026 Economic Growth Projection to Lag Behind Vietnam Due to This

The World Bank has cut Indonesia’s economic growth projection for 2026 to 4.7 per cent, down from the previous estimate of 4.8 per cent. This was announced in the April 2026 edition of the East Asia and Pacific Economic Update report, which has just been released.

Nevertheless, this figure is higher than the projected growth for the East Asia and Pacific (EAP) region, which stands at only 4.2 per cent. The region includes Cambodia, China, Indonesia, Laos, Malaysia, Mongolia, Myanmar, Papua New Guinea, the Philippines, Thailand, Timor-Leste, Vietnam, and Pacific Island Countries.

Aaditya Mattoo, the World Bank’s Chief Economist for East Asia and the Pacific, stated that the region’s outlook is influenced by three main external factors: conflicts in the Middle East that are triggering rises in energy prices, trade restrictions in the United States as well as global policy uncertainties, and positive developments in the form of an explosion in artificial intelligence (AI) technology.

“We assess Indonesia as relatively resilient because its dependence on oil imports, for example, is lower than other countries,” said Mattoo, quoted on Thursday, 9 April 2026.

The report notes that Indonesia’s net imports of oil and gas in 2024 were only about 1 per cent of gross domestic product (GDP), while Thailand’s reached 7 per cent, the Philippines 3 per cent, and Vietnam 2 per cent.

However, global shocks are still expected to impact Indonesia, particularly through rising oil prices that add to the fiscal burden due to energy subsidies and compensation.

Inflationary pressures are assessed as potentially increasing along with rising oil prices, surges in fertiliser prices that drive up food costs, and increases in semiconductor prices that affect the entire value chain.

Mattoo added that rising global risk sentiment could also pressure investment and consumption. Nevertheless, the World Bank forecasts that Indonesia will recover with growth reaching 5.2 per cent in 2027.

This recovery is expected to be driven by the operation of the state wealth fund, Danantara, which channels more productive investments, the availability of more private credit through liquidity injections, as well as government efforts to strengthen downstream industries, address obstacles, and attract foreign investment.

The report also highlights that Indonesia’s current growth of around 5 per cent per year exceeds the estimated potential growth, largely thanks to government support.

However, reforms such as the removal of non-tariff barriers in the services sector, deregulation, and simplification of business licensing are assessed as able to increase potential growth while creating productive jobs. Meanwhile, the 2026 economic growth projections for neighbouring countries are Malaysia at 4.4 per cent, the Philippines at 3.7 per cent, Thailand at 1.3 per cent, and Vietnam at 6.3 per cent.