World Bank Predicts Indonesia's Economic Growth to Slow to 5% in 2026

The World Bank projects Indonesia's economic growth to moderate to 5 percent in 2026, a slight decrease from the 5.11 percent recorded last year. This slowdown is attributed to external pressures and the fiscal strain caused by energy subsidies. The forecast also falls short of the Indonesian government's target, which anticipates growth between 5.4 and 5.6 percent for the year.

According to the World Bank's June 2026 Indonesia Economic Prospect report, growth is expected to dip to 5 percent in 2026 as external pressures weigh on investment and exports. A recovery to 5.2 percent is anticipated for the 2027–2028 period. While private consumption is projected to remain robust, around 5.0 percent, bolstered by fiscal stimulus, and government consumption is expected to rise to 8.7 percent, the reliance on household spending carries risks due to limited fiscal space and rising subsidy costs.

The bank noted that the Middle East conflict, while contained, continues to impact global oil markets. Brent crude prices remain high at $94 per barrel, exceeding the 2026 state budget assumption of $70 per barrel. Although Indonesia's Q1 2026 economic growth was strong, this was due to front-loaded spending rather than a more favorable external environment.

Looking ahead, Indonesia's medium-term growth prospects hinge on the successful implementation of structural reforms and the easing of external headwinds. Persistent supply pressures in oil and shipping could escalate energy and fertilizer prices, thereby increasing inflation, subsidy costs, and import values. Weaker global demand might dampen exports and foreign direct investment, while also raising bond yields and risk premiums. In such a scenario, economic growth during 2027–2028 could be 0.2 to 0.3 percentage points lower. Conversely, a faster-than-expected easing of these risks, lower oil prices, improved trade conditions, and revived investor sentiment could boost growth by 0.2 to 0.4 percentage points.