Indonesia's Economic Growth Expected to Slow to 5% in Q2 2026 Amid Geopolitical Uncertainty

Indonesia's economic growth is expected to decelerate in the second quarter of 2026, with projections placing it around 5 percent, according to the Institute for Development of Economics and Finance (Indef). While still considered optimistic, this figure represents a slowdown from the previous quarter.

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We project that for the second quarter of 2026, with several challenging points, Indonesia's economic growth will slow to around 5 percent.

Indef's Program Director, Eisha Maghfiruha Rachbini, highlighted significant geopolitical uncertainty as a primary challenge. She noted that the fluctuating global political landscape creates high risks and uncertainty, evident in soaring geopolitical and uncertainty indices. Even with reports of ceasefires, Rachbini cautioned against assuming an end to conflict, stating that risks and uncertainty persist.

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In the first half of the year, we faced uncertain geopolitics. The ups and downs of the geopolitical situation create very high risks, very high uncertainty, clearly seen from the soaring geopolitical and uncertainty indices.

This ongoing geopolitical instability is predicted to disrupt global supply chains, increasing distribution costs and consequently driving up energy and commodity prices. Rachbini outlined three key impacts: pressure on production and fiscal costs, disruptions to trade and supply chains leading to higher logistics expenses, inflation, and reduced purchasing power, and finally, effects on investment and the financial sector.

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This uncertainty still exists, so it becomes a risk and challenge for 2026.

Rachbini pointed out that the 5.61 percent growth recorded in the first quarter of 2026 was temporary. This was partly due to a low base effect in government spending and less robust growth in household consumption, despite the usual boost from the Ramadan and Eid al-Fitr holidays. Indef anticipates greater difficulty in stimulating the economy in subsequent quarters.

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If we look at the first quarter of 2026, the economic growth of 5.61 percent appears quite high, but this is only temporary.