Indonesian economic growth slows to 5.3% in Q2, but beats forecast

KUALA LUMPUR, 6 AUGUST 2026 —

Indonesia’s gross domestic product expanded 5.29% in the second quarter, beating the 5.1% median forecast in a Reuters poll and outperforming the prior quarter’s 5.61% growth, Statistics Indonesia reported on Wednesday.

Government spending surged 15.97% in April-June, the strongest gain since the pandemic recovery began. Household consumption rose 5.06%, slower than the 5.52% gain in the first quarter. Investment climbed 6.87%, the fastest pace in a year, while imports again outpaced exports, detracting from growth.

“The sharp pick-up in public spending was a key contributor, while consumption received a hand from stimulus measures and limited pass-through of elevated global energy prices,” said DBS Bank economist Radhika Rao. Fuel subsidies shielded consumers from higher energy costs, she added.

Manufacturing growth slowed while mining contracted due to quota curbs. Construction posted its best expansion in nearly two years, driven by infrastructure projects and President Prabowo Subianto’s village cooperative initiative. The rupiah remains near record lows against the dollar, and equities have fallen nearly 30% this year amid concerns over Bank Indonesia’s independence following Governor Perry Warjiyo’s resignation.

Bank Permata economist Faisal Rachman warned further rate hikes—including 100 basis points in May-June—could curb growth. “Persistent external pressures risk widening Indonesia’s fiscal and current account deficits, threatening macroeconomic stability,” he said.

For Malaysian businesses, Indonesia’s slower growth and currency pressure signal weaker trade and investment opportunities, particularly in manufacturing and construction.

Related: DBS · Bank Indonesia