Indonesia GDP

Economic growth rises in the first quarter of 2026

Acceleration surprises markets: Indonesia's GDP increased 5.6% in annual terms in Q1, following a 5.4% expansion in the previous quarter. Q1's reading was the strongest since Q3 2022 and surpassed market expectations of steady growth.

Private and public spending drive headline acceleration: Relative to the prior period's data, readings in Q1 improved for private consumption (+5.5% in annual terms vs +5.1% in Q4), government consumption (+21.8% vs +4.5% in Q4) and imports of goods and services (+7.2% vs +4.0% in Q4). In contrast, readings worsened for fixed investment (+6.0% vs +6.1% in Q4) and exports of goods and services (+0.9% vs +3.3% in Q4). Private spending was boosted by the Eid al-Fitr celebration, and public consumption benefited from faster budget disbursements compared to last year and frontloaded social spending. Meanwhile, growth in fixed investment remained robust, supported by rising public outlays. Less positively, net trade detracted 1.2 percentage points from GDP growth, worsening from the prior quarter.

GDP growth to come under pressure: Going forward, the Indonesian economy is likely to face headwinds in the remainder of 2026. While the government has implemented fuel subsidies to contain the impact of the Iran war on domestic inflation, its fiscal space to sustain them over the long term is limited and could divert funds away from infrastructure development. Moreover, the investment landscape remains challenging. Markets have recently flagged concerns over the sustainability of the Prabowo administration's spending plans and governance transparency—developments that rattled financial markets and weakened the rupiah to record lows against the USD. Investor sentiment could sour further and capital outflows intensify in the event of a credit rating downgrade or a looser-than-expected fiscal stance.

Panelist insight: Nomura’s Euben Paracuelles and Nabila Amani said: “Taking into account the Q1 outturn, we raise our 2026 GDP growth forecast slightly to 5.2% from 5.0%, still below both the government’s projection of 5.3-5.4%. Our forecast pencils in a slowing trajectory to 5.0?% in H2 from 5.3% in H1, as we think the main drivers in Q1 are unsustainable. A revival in private consumption is likely to be constrained by structural factors, including labor market weakness. […] Externally, exports are likely to be held back by weaker global demand, while the prolonged conflict in Iran is showing some early signs of affecting supply chains of raw materials. Sustaining investment growth momentum also looks challenging in that environment, amid already-fragile business sentiment, a weakening currency, the threat of credit rating outlook downgrades, and still-limited progress in reforms.” United Overseas Bank’s Enrico Tanuwidjaja and Vincentius Ming Shen commented: “While strong GDP growth signaled resilience, the reliance on fiscal expansion raises caution and unlikely to be sustainable. Fiscal data showed a deficit of 0.93% of GDP in 1Q26, with revenue growth (+10.5% y/y) lagging behind expenditure (+31.4% y/y). […] At the current rate, it may seemingly look promising for growth to be able to reach the government’s near term target of 6%, but fiscal discipline will likely be a key constraint for that goal (see Indonesia: Fiscal posture in 2026 remains expansionary but prudent). Effective spending allocation, stronger investment partnerships (CEPA, ASEAN, bilateral cooperation), and down-streaming initiatives will be key to sustaining growth.”

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