BI: Global Economic Growth Prospects Remain Weak, Domestic Remains Strong

Bank Indonesia (BI) forecasts that global economic growth will remain weak in 2026, projecting a rate of approximately 3 percent. This outlook is attributed to ongoing geo-economic and geopolitical uncertainties, including the intensified conflict in the Middle East, which is driving up oil and commodity prices. The central bank also anticipates that global inflation will persist at high levels, potentially around 4.5 percent, prompting tighter monetary policies worldwide.

These global conditions are expected to influence financial markets, with the US Federal Reserve likely to increase its policy rates in the fourth quarter of 2026. Yields on US Treasury bonds are also predicted to remain elevated due to these expectations and the substantial US budget deficit. Consequently, global investors may show reduced preference for emerging market portfolio investments, while the US dollar is expected to maintain its strength against major currencies.

In contrast to the subdued global outlook, BI assesses that Indonesia's domestic economy is poised to remain robust and even improve from previous projections. The country's economic growth in the second quarter of 2026 was recorded at 5.29 percent year-on-year, building on the previous quarter's performance. This growth has been significantly bolstered by fiscal stimulus measures, which have boosted government consumption and investment.

Government spending has increased, partly due to the 13th-month salary payments and expenditures related to the "Makan Bergizi Gratis" (Free Nutritious Meal) program. While household consumption remains stable, efforts are underway to further stimulate it, leveraging the momentum from fiscal support. BI also emphasizes the need to boost exports to strengthen the overall economic growth structure. Moving forward, the central bank anticipates continued economic strength, supported by government stimulus programs and sustained economic actor confidence, with BI reinforcing its policy mix.