Indonesia's Economic Growth at 5.61% in Q1-2026 But Concern Over Fiscal Economy Persists

Growth was particularly supported by household consumption (with the Ramadan and Idul Fitri period giving rise to strong consumption of foods and drinks as well as strong demand for hotels and restaurants amid the national holiday), government spending (on matters such as the 14th-month wage for civil servants and the Free Nutritious Meals program which involves the construction of many kitchens as well as a generous money stream to run those kitchens), and private direct investment.

While the 5.61 percent (y/y) growth rate was high (in fact, the highest since Q2-2021 when a sharp rebound occurred after the COVID-19 crisis), it was in line with expectations as the Prabowo Subianto administration allows the state budget to absorb shocks that stem from the war in the Middle East. For example, despite skyrocketing oil prices and a heavily weakening rupiah, the cabinet did not raise prices of subsidized fuels (such as Pertalite), nor did it raise the price of non-subsidized fuels such as Pertamax, in an effort to safeguard purchasing power.

While this allows strong growth in the real economy, it is the fiscal or financial economy that comes under heavy pressure. In fact, this may encourage global credit rating agencies to downgrade Indonesia from investment grade to ‘speculative grade’, which would give rise to an enormous capital outflow from Indonesia, putting more pressure on the rupiah, bonds and stock market.

While the fiscal (or financial) economy and real economy are deeply interconnected, they operate on different timelines, and respond to different triggers. The Indonesian cabinet is currently allowing the fiscal economy to weaken in order to protect the real economy. But while this might be a short-term solution, the threat of such decoupling (when the fiscal economy and real economy are moving in opposite directions) is that eventually, the fiscal economy can no longer support the real economy. This is then likely to cause a bigger disruption to the real economy.

It is now waiting for the release of MSCI's Market Accessibility Review that is scheduled for June 2026. For the May 2026 Index Review, MSCI decided to maintain its current freeze on Indonesian securities due to transparency concerns.

Difference between the Fiscal and Real Economies:

Fiscal/Financial Economy	The domain of government accounts, debt markets, and institutional capital (indicators include the state budget deficit, Debt-to-GDP ratio, bond yields, and stock market)
Real Economy	This is where goods are actually produced, sold, and consumed. It is the economy experienced by all people (indicators include inflation, manufacturing PMI, retail sales and unemployment)

‹ Kembali ke Berita Hari Ini

Bahas

Silakan login atau berlangganan untuk mengomentari kolom ini