Indonesia’s growth outlook holds despite global headwinds
Indonesia’s economy is forecast to expand 5.3% in 2026 on resilient domestic demand and continued investment, according to the ASEAN+3 Macroeconomic Research Office (AMRO).
Source: ASEAN+3 Macroeconomic Research Office · August 28, 2026 at 9:01 AM · AI-assisted report
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INDONESIA, SINGAPORE, ASEAN+3 REGION, 28 AUGUST 2026 —
Indonesia’s Economic Resilience Hinges on Policy Consistency, AMRO Says
Market Impact
SINGAPORE, Aug 28, 2026 – Indonesia’s economic outlook remains, with growth projected at 5.3% in 2026, driven by resilient domestic consumption and steady investment. However, rising global oil prices are straining fiscal resources through higher energy subsidies, while financial market volatility underscores the need to maintain investor confidence. The ASEAN+3 Macroeconomic Research Office (AMRO) emphasized that fiscal sustainability, central bank independence, and coordinated policy communication will be critical to sustaining stability.
The assessment follows AMRO’s Annual Consultation Visit to Indonesia from July 27 to August 20, 2026, led by Group Head and Lead Economist Ravi Balakrishnan, alongside AMRO Director/CEO Yasuto Watanabe and Chief Economist Dong He. Discussions with Indonesian authorities focused on macroeconomic stability amid global uncertainty.
Indonesia’s growth forecast of 5.3% in 2026 is supported by domestic demand and government spending on priority programs, despite external pressures. “Prolonged high global energy prices and volatile capital flows are weighing on Indonesia’s outlook,” Balakrishnan noted. He stressed that carefully calibrated policies, clear communication, and inter-agency coordination will be essential to achieving intended outcomes while preserving Bank Indonesia’s focus on macroeconomic stability.
Inflation is projected to average 3.4% in 2026, remaining within the official target range. Subsidized energy prices are expected to cushion the impact of higher global oil prices, though risks from El Niño-driven agricultural disruptions and rupiah depreciation could push inflation above target temporarily. The current account deficit is projected to widen due to higher oil imports and corporate income repatriation, though portfolio inflows—particularly into Bank Indonesia Rupiah Securities (SRBI)—are expected to provide support. International reserves remain above conventional adequacy benchmarks despite recent moderation.
Fiscal discipline has been maintained, with the government rationalizing non-priority spending to keep the deficit at 2.8% of GDP in 2026, below the statutory 3% limit. Priority programs, including the Free Nutritious Meal and Red and White Village Cooperative initiatives, have been streamlined. Revenue gains from improved tax administration are expected to offset higher energy subsidies and program spending.
Bank Indonesia has responded to challenges with a cumulative 100-basis-point rate hike in May-June 2026, followed by a hold at 5.75%. The central bank has also strengthened monetary operations, foreign exchange measures, and macroprudential policies to support credit growth and rupiah stability. Indonesia’s banking sector remains resilient, with strong capital and liquidity buffers, sound asset quality, and profitability.
As a net oil importer, Indonesia faces external and fiscal pressures from elevated global energy prices, though higher commodity export prices could partially offset these effects. Portfolio outflows in early 2026 contributed to rupiah volatility, but net inflows in Q2—driven by SRBI—provided support. Market sensitivity to fiscal sustainability, governance, and policy predictability remains high.
Structural challenges persist, including a declining revenue-to-GDP ratio, a large informal sector, and commodity-dependent exports. However, potential upside factors include state-owned enterprise (SOE) reforms under Danantara and debottlenecking efforts. AMRO recommends enhancing revenue mobilization through tax administration improvements and broadening the tax base while maintaining the 3% deficit ceiling to anchor stability.
Monetary policy should prioritize rupiah and price stability, supported by clear communication and prudent reserve management. Strengthening investor confidence will require credible, coordinated policies across agencies. Financial inclusion efforts should complement credit infrastructure development, while capital market reforms must deepen domestic markets and improve infrastructure.
Long-term growth hinges on SOE governance, agricultural productivity, and human capital development. The Danantara Sovereign Wealth Fund presents opportunities, but governance and transparency will be. A coherent policy framework could foster high-performing enterprises, expand the middle class, and support Indonesia’s goal of achieving high-income status by 2045.
AMRO expressed gratitude to Indonesian authorities for their cooperation during the mission. As a regional surveillance body, AMRO supports macroeconomic resilience and financial stability in the ASEAN+3 region, which includes Malaysia, China, Japan, and South Korea.