Akmalal Hamdhi, Jakarta – Indonesia's economy grew 5.29% year-on-year in the second quarter of 2026, but the country's business community warned that the expansion remains fragile as higher production costs and weaker demand continue to weigh on companies.

The Indonesian Employers Association (Apindo) welcomed the stronger-than-expected economic performance, saying the momentum should be maintained through the remainder of the year.

"We certainly appreciate the second-quarter 2026 growth figure of 5.29% year-on-year. This is a very positive achievement, and we need to ensure it can be sustained and even increase through the end of the year," Apindo Chairwoman Shinta Kamdani said Wednesday.

However, Shinta said the second quarter was a challenging period for Indonesia's real economy, with businesses facing pressure from both rising costs and weakening demand.

Some industries experienced cost-push inflation as geopolitical tensions around the Strait of Hormuz contributed to higher energy prices, increasing production costs, she said.

A weaker rupiah also added to companies' expenses, particularly for industries that remain reliant on imported raw materials.

On the demand side, exporters faced weaker orders from several of Indonesia's trading partners. Shinta said geopolitical tensions had also reduced purchasing power in countries hit harder by higher oil and gas prices than Indonesia.

Export demand was further affected by trade-related issues, including a US investigation involving Indonesia, she said. Domestically, higher fuel prices also temporarily slowed consumer demand.

"Business activity in the real sector, at least from what companies experienced, was quite challenging throughout the second quarter of 2026 and did not provide much support for business expansion," Shinta said.

She stressed that some companies continued to expand, but their numbers remained limited and expansion had yet to become the dominant trend amid pressures on both demand and production costs.

Manufacturing remains near stagnation

The challenges facing businesses were also reflected in Indonesia's manufacturing sector.

Indonesia's S&P Global Manufacturing Purchasing Managers' Index rose to 50.2 in July, only marginally above the 50-point threshold separating expansion from contraction.

Shinta said the reading indicated that manufacturing activity had begun moving back into expansion territory, but the recovery remained limited.

She said the government and policymakers needed to maintain the economy's growth momentum to make the recovery more solid and encourage broader business expansion.

"Even if the economy grew in the second quarter, that growth is still relatively new and fragile," Shinta said.

"The momentum needs to be maintained so that growth becomes more solid and more exponential going forward, helping reverse the trend of industries that remain defensive or under pressure," she added.

Source: https://jakartaglobe.id/business/indonesias-economy-grows-529-but-businesses-still-feel-the-squeez