Cristina Siregar, Jakarta – Indonesia's economy expanded 5.29 percent in the second quarter of 2026, but the strong headline figure masks growing vulnerabilities in the country's economic foundation, the Center for Strategic and International Studies (CSIS) has warned.
CSIS senior economics researcher Deni Friawan said Indonesia's latest growth performance remains heavily dependent on government spending and investment, while key sectors such as labor-intensive manufacturing continue to lag.
"Economic growth remains positive, but its foundation is becoming increasingly concentrated in domestic demand, particularly government spending and gross fixed capital formation (GFCF)," Deni said in a statement on Thursday, August 6, 2026.
He warned that Indonesia's economic policy space is narrowing due to limited fiscal flexibility, exchange rate pressures, and an uneven growth structure.
Growth relies on spending, investment
According to Statistics Indonesia (BPS), Indonesia's 5.29 percent GDP growth in the second quarter was mainly supported by a 15.6 percent increase in government spending and a 6.87 percent rise in GFCF.
However, Deni said the figures do not fully reflect the health of the economy.
The manufacturing sector, particularly labor-intensive industries that absorb millions of workers, expanded at a slower pace than overall economic growth. Meanwhile, the services sector continued to become a larger driver of expansion.
"This indicates that growth has yet to be fully supported by sectors capable of creating broad-based employment," Deni said.
Rupiah pressure limits policy options
Beyond domestic factors, CSIS highlighted risks from the external sector.
After maintaining consecutive trade surpluses, Indonesia recorded trade deficits in the past two months. At the same time, efforts to stabilize the rupiah, which has traded in the Rp17,000-Rp18,000 range per US dollar, have pressured the country's foreign exchange reserves.
Deni said Bank Indonesia's market interventions have reduced reserves to a level equivalent to around 4.8 months of imports, limiting the government's ability to respond to future shocks.
Fiscal constraints have also become a concern. While Indonesia's state budget deficit remains relatively low at 0.76 percent of GDP, spending efficiency measures implemented by the central government have affected regional liquidity.
Cuts in transfers to local governments have reduced their ability to use public spending as a tool to stimulate local economies.
Middle class faces growing pressure
CSIS also questioned whether recent poverty improvements fully capture economic pressures faced by households.
Deni noted that Indonesia still has around 22 million people living in poverty, while the official poverty threshold used by BPS stands at Rp669,000 per month.
He added that the labor market is facing challenges as more workers shift into informal employment, while educated unemployment among university graduates continues to rise.
The trend has contributed to a widening gap in purchasing power, creating a K-shaped economic recovery in which higher-income groups remain resilient while lower- and middle-income households face increasing pressure.
Many households, he said, have been forced to rely on "mantab" strategies, referring to using savings (makan tabungan) and taking on debt to maintain daily consumption.
Deni warned that without stronger support from productive sectors, Indonesia's headline growth figures may not translate into broader economic resilience.
Source: https://en.tempo.co/read/2116871/labor-party-president-no-protests-scheduled-for-august-septembe