Ilona Estherina, Jakarta – The World Bank projects that Indonesia's economic growth will reach 5 percent in 2026, dropping below last year's 5.11 percent expansion in Gross Domestic Product (GDP). This deceleration is primarily driven by intensifying external pressures and a heavy fiscal burden from energy subsidies.
This latest forecast also falls short of the government's growth target of 5.4 to 5.6 percent for the year. "GDP growth is projected to moderate to 5.0 percent in 2026, as external pressures 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, released on Sunday, June 14, 2026.
Private consumption is expected to maintain a steady growth trajectory at around 5.0 percent, buoyed by fiscal stimulus, while government spending has climbed to 8.7 percent. However, relying heavily on household consumption to anchor short-term growth carries inherent risks, especially given the country's narrowing fiscal space and rising subsidy bills.
The World Bank observes that while the Middle East conflict remains contained, it has persisted into this year. Resulting oil market disruptions and shipping friction have kept Brent crude prices elevated at around US$94 per barrel, significantly above the 2026 state budget assumption, which benchmarked world oil prices at US$70 per barrel.
The updated projection acknowledges the robust economic expansion recorded in the first quarter of 2026, noting that it was driven by front-loaded spending early in the year. The report emphasizes that this early momentum was not due to a more favorable external environment or a lighter risk assessment.
Looking ahead, the World Bank estimates that economic growth will rebound to 5.2 percent in the 2027-2028 period. Nevertheless, Indonesia's medium-term growth prospects hinge heavily on the successful rollout of structural reforms and the easing of external constraints.
Protracted pressure on oil supplies and maritime shipping routes risks driving up energy and fertilizer costs, which could fuel inflation, inflate subsidy expenditures, and drive up import values. Concurrently, weakening global demand is poised to dent exports and Foreign Direct Investment (FDI), while pushing up bond yields and risk premiums.
These risks could inflate borrowing costs, put downward pressure on the rupiah exchange rate, and further constrict the government's fiscal headroom. Under this adverse scenario, economic growth for the 2027-2028 period could end up 0.2 to 0.3 percentage points lower than currently forecast.
Conversely, should these risks dissipate faster than expected, bringing lower oil prices, trade improvements, and a revival in investor sentiment, the growth outlook could see an upward revision of 0.2 to 0.4 percentage points. Additional positive momentum could stem from unexpected commodity windfalls, an accelerated implementation of recently ratified trade pacts, and sustained deregulation efforts.
Source: https://en.tempo.co/read/2108483/world-bank-forecasts-slower-economic-growth-for-indonesi