Indonesia has the potential to experience economic recession in 2026 and 2027

JAKARTA - Bright Institute Senior Economist, Awalil Rizky, predicts that the Indonesian economy, which is currently not going well, will continue in 2026, even at risk of recession in the second semester and in 2027.

He explained that the macroeconomic conditions did not seem to improve where economic growth was still the same as the normal pattern of this decade, growing in the range of 5 percent by relying on household consumption. Although still under control, inflation is quite high still occurs in the food component and in the midst of declining unemployment rates, the employment situation in general has actually deteriorated.

"Economic growth is likely still in the range of 5 percent, but is at risk of falling to around 2.5 percent. The reason is that household consumption continues to decline. This is mainly due to declining worker income, along with increasing layoffs and informality of work," said Awalil in his statement, Friday, January 2.

In addition, the fiscal condition is also worrying where income, especially taxes, is difficult to increase due to the sluggish economy.

On the other hand, the ambition of spending is getting bigger, because of various priority programs and the fatness of bureaucracy.

The widening deficit is more difficult to prevent, culminating in the need for greater debt.

"In fact, the government's debt burden is getting heavier. Assessing the government's debt is still safe only from its ratio to GDP is inadequate. It is more appropriate to assess it from the aspect of the burden of interest payments and principal repayments. The debt service ratio has been more than 40 peresn, even interest alone has been almost 20 percent," explained Awalil.

He revealed that the fact shows that most of the population is clustered not far from the poverty line, and the middle class is also reduced.

At the same time, the inequality of financial wealth between groups of people increased.

These factors could expand economic risks to social and political ones.

In general, the Bright Institute assesses Indonesia's economic resilience to be at a low level, even prone to being fragile.

Indicated by weak macroeconomic conditions, narrow fiscal policy space, and unconstrained monetary policy.

"The weakening of the rupiah in 2025 could continue in 2026, even potentially with higher volatility. This is closely related to the increase in global financial risks. Especially because of the behavior of the nonbank financial industry, whose value has surpassed the banking industry," said Awalil.

The world's economic conditions, he said, are facing a serious threat of stagflation, especially in some developed countries.

The United States and China still face the risk of economic slowdown, increased unemployment, and relatively high inflation.

More specifically, the uncertainty of global financial dynamics leads to the risk of a "crash" of a scale that is likely to be equivalent to or more severe than 2008.

He assessed that, in facing these challenges, the Prabowo Subianto Government so far does not seem to be prepared.

There is no "sense of crisis", and even the government's economic policy is still easy to change.

If the lack of clarity on this policy direction continues in 2026, it will be a factor that adds its own risk.

"However, this assessment is only a warning for all parties to be vigilant, especially economic authorities such as the government and Bank Indonesia. This assessment is not an estimate of the occurrence of a recession, even a crisis, but reminds us that it could happen in the middle of 2026 or 2027," concluded Awalil.