World Bank Forecasts Indonesia's Economic Growth at 5 Percent This Year

The World Bank predicts Indonesia’s economic growth in 2026 will be 5 percent, lower than last year’s recorded 5.11 percent of Gross Domestic Product (GDP). The slowdown is attributed to external pressures and the fiscal burden of energy subsidy costs. This projection is also below the government’s target of 5.4 to 5.6 percent for the year. “GDP growth is projected to slow to 5 percent in 2026, as external headwinds weigh on investment and exports, before recovering to 5.2 percent in 2027–2028,” according to the June 2026 edition of the Indonesia Economic Prospect (IEP) report. Private consumption is expected to continue growing at around 5.0 percent, supported by fiscal stimulus, whilst government consumption increases to 8.7 percent. However, reliance on household consumption as a short-term growth cushion carries risks, given limited fiscal space and rising subsidy costs. The World Bank assesses that the Middle East conflict remains contained but continues into this year. Oil market disruptions and shipping frictions are keeping Brent crude oil prices high at US$94 per barrel, above the 2026 budget assumption. The 2026 state budget macro assumption sets the world oil price at around US$70 per barrel. The forecast also accounts for strong economic growth in the first quarter of 2026, but due to frontloaded early-year spending, “not because of a friendlier external environment or lighter risk assessment.” The World Bank expects economic growth to increase to 5.2 percent in 2027-2028. However, Indonesia’s medium-term growth prospects depend on the successful implementation of structural reforms and the easing of external obstacles. Prolonged pressure on oil supplies and shipping lanes risks increasing energy and fertiliser prices, raising inflation, subsidy costs, and import values. Weaker global demand would lower exports and foreign direct investment, whilst increasing bond yields and risk premiums. Such risks could increase borrowing costs, pressure the rupiah exchange rate, and narrow fiscal space. Under this scenario, economic growth in the 2027-2028 period could be 0.2 to 0.3 percentage points lower. Conversely, if these risks subside faster than anticipated, with lower oil prices, improved trade, and recovering investor sentiment, the growth percentage could increase by 0.2 to 0.4 points. A positive boost could also emerge from higher commodity windfalls, faster implementation of newly agreed trade agreements, and ongoing deregulation reforms.