Middle East conflict eases but BI maintains low global growth forecast

Bank Indonesia (BI) has maintained its forecast for a subdued global economic growth of 3 percent in 2026. This projection holds despite a slight easing of tensions in the Middle East following an interim deal between the United States and Iran on June 14, 2026. Governor Perry Warjiyo stated that global economic growth is expected to remain low, accompanied by a rise in inflation to approximately 4.4 percent.

“

Growth in the world economy in 2026 is expected to remain low at 3.0 percent, followed by rising inflationary pressures to around 4.4 percent.

Warjiyo explained that the protracted conflict in the Middle East, which began in late February 2026, has disrupted production, distribution, and international trade supply chains, thereby dampening global economic prospects. This inflationary pressure has led several central banks to begin increasing their policy interest rates.

The US Federal Funds Rate is currently held at 3.75 percent, with potential for further increases due to a higher inflation outlook in the US. US Treasury yields remain elevated, with the 10-year yield at 4.49 percent and the 2-year yield at 4.18 percent as of June 17, 2026, driven by a growing fiscal deficit. Consequently, the US dollar index (DXY and ADXY) remains strong, diminishing investor appetite for emerging market assets in favor of safe-haven assets in developed economies.

“

The war that has been ongoing in the Middle East since late February 2026 has caused disruptions in production, distribution, and supply chains for international trade, as well as lowered the prospects for the global economy.

Looking ahead, BI anticipates that developments in the US-Iran negotiations regarding the Middle East conflict will remain dynamic. The bank stressed the need for continued vigilance and a strengthening of policy responses and coordination between fiscal and monetary authorities to bolster external resilience, maintain stability, and stimulate domestic economic growth.

“

Going forward, the developments in negotiations between the US and Iran regarding a settlement of the conflict in the Middle East are expected to remain dynamic, requiring vigilance and strengthening of policy responses and synergy between fiscal and monetary policies to strengthen external resilience, maintain stability, and encourage domestic economic growth.