World Bank Projects Indonesian Economy to Grow 4.7 Percent in 2026

The atmosphere of a densely populated residential area in Jakarta, Monday (27/1/2025). (ANTARA FOTO/Indrianto Eko Suwarso/rwa.)

JAKARTA - The World Bank projects Indonesia's economic growth in 2026 at 4.7 percent, down from the previous estimate of 4.8 percent, according to the April 2026 edition of the East Asia and Pacific Economic Update.

This figure is higher than the East Asia and Pacific (EAP) region's growth projection of only 4.2 percent. East Asia and Pacific includes Cambodia, China, Indonesia, Laos, Malaysia, Mongolia, Myanmar, Papua New Guinea, the Philippines, Thailand, Timor-Leste, Vietnam, and the Pacific Island Countries.

World Bank Chief Economist for East Asia and the Pacific Aaditya Mattoo said the region's outlook was influenced by three main external factors: conflicts in the Middle East that triggered energy price increases, trade restrictions in the United States as well as global policy uncertainty, and positive developments in the form of an explosion of artificial intelligence (AI) technology.

"We assess that Indonesia is relatively resilient because its dependence on oil imports, for example, is lower than other countries," Mattoo said, quoted by ANTARA, Wednesday, April 8.

The report notes that Indonesia's net oil and gas imports in 2024 are only around 1 percent of gross domestic product (GDP), while Thailand reaches 7 percent, the Philippines 3 percent, and Vietnam 2 percent.

However, global shocks are believed to still have an impact on Indonesia, especially through rising oil prices which add to the fiscal burden due to energy subsidies and compensation.

Inflationary pressure is considered potentially increasing along with rising oil prices, a surge in fertilizer prices that drives food costs, and rising semiconductor prices that impact the entire value chain.

Mattoo added that rising global risk sentiment also has the potential to suppress investment and consumption.

However, the World Bank estimates that Indonesia will recover with growth reaching 5.2 percent in 2027.

The 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, overcome obstacles, and attract foreign investment.

The report also highlights that Indonesia's current growth of around 5 percent 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 business licensing simplification are considered to increase potential growth while creating productive jobs.

Meanwhile, the projected economic growth in 2026 for neighboring countries is Malaysia 4.4 percent, the Philippines 3.7 percent, Thailand 1.3 percent, and Vietnam 6.3 percent.