Indonesian Economy Predicted to Slow Down to 5 Percent in the Second Quarter of 2026

Indonesian economy (Photo: Unsplash)

JAKARTA - Indonesia's economic growth in the second quarter of 2026 is expected to slow down and potentially be below 5 percent.

The Macroeconomics and Financial Markets Economist of LPEM FEB UI Teuku Riefky estimates that Indonesia's economic growth in the second quarter of 2026 will slow to 4.80 percent on an annual basis (year on year/yoy).

"Overall, we estimate that Indonesia's GDP in the second quarter of 2026 will grow by 4.80 percent (yoy) (estimate range from 4.78 percent to 4.82 percent)," wrote in a public document published by LPEM FEB UI, Tuesday, August 4.

He added that while the overall GDP growth in 2026 is estimated at 5.00 percent (yoy) with an estimated range of 4.95 percent to 5.05 percent,

Riefky said the slowdown was also influenced by the high base effect, considering that Indonesia's economy in the second quarter of 2025 was able to grow 5.12 percent year-on-year.

In addition, according to him, economic growth in the second quarter of 2026 also did not receive a significant seasonal boost and this was because the Ramadan and Eid al-Fitr period took place in the first quarter of 2026.

In addition to domestic factors, Riefky said external pressures also burdened the economy, namely high energy prices and the weakening of the rupiah exchange rate, which has the potential to increase import inflation as well as encourage an increase in production costs in the country.

He added that the increase in the price of Pertamax was also considered to provide additional pressure on people's purchasing power because it had the potential to increase the price of goods and transportation costs.

Similarly, the Economist of the Center of Reform on Economics (CORE) Indonesia, Yusuf Rendy Manilet, estimated that Indonesia's economy in the second quarter of 2026 grew by around 4.8 percent to 4.9 percent (yoy) or lower than the growth in the first quarter of 2026 which reached 5.61 percent.

"This slowdown is mainly influenced by the normalization of household consumption after the big day period, the pressure from the trade balance deficit, and the increase in energy prices," he explained in his statement.

Yusuf said government spending and investment were still supporting growth, but were not considered strong enough to compensate for the weakening of domestic demand and the external sector.

He added that pressure also came from the weakening of the rupiah exchange rate which had been in the range of Rp18,000 per US dollar so that the depreciation of the rupiah increased import costs and raw materials, thus driving inflation from the cost side.

According to him, this condition has the potential to suppress people's purchasing power while reducing industry margins, especially sectors that are still dependent on imported raw materials.

On the external side, he said the increasing geopolitical tensions in the Middle East also contributed to the increase in energy prices and logistics costs so that the impact was reflected in the increase in energy and mineral imports, pressure on the trade balance, and increased investor caution.

"This factor makes the contribution of net exports to economic growth more limited," he said.

Meanwhile, Yusuf said the manufacturing sector was still facing pressure, namely the Purchasing Managers' Index (PMI) for manufacturing was recorded as contracting at 46.9 in June 2026, which showed a weakening in demand and production, especially in labor-intensive industries such as textiles, footwear, and ceramics.

"Although the PMI increased to 50.2 in July, the improvement is still an early signal and has not significantly affected the performance of the second quarter," he explained.

He added that if economic growth is below 5 percent, the impact has the potential to spill over into the labor market.

According to him, the creation of formal jobs can slow down and pressure on the industrial sector, including the risk of labor reduction, can increase.

"In the end, this condition will again affect household consumption as one of the main drivers of the economy," he concluded.