International Institutions Cut Projections for Indonesia's 2026 Economic Growth
The Iran War has heavily affected the fiscal and financial economy of Indonesia. Sharply rising crude oil prices cause a widening budget deficit for the government, while the rupiah (and to a lesser extent Indonesian stocks and bonds) weakened significantly as financial market participants have become wary.
However, several leading international institutions now also expect the impact of the Iran War to be felt in the real economy of Indonesia. And so, the World Bank and Organisation for Economic Cooperation and Development (OECD) have both recently cut their projections for Indonesia's economic growth in 2026.
Table 1; Projections for Indonesia's Economic Growth in 2026:
| Institution | Revised Projection (annual % change) |
| World Bank | 4.7% |
| Organisation for Economic Cooperation and Development (OECD) |
4.8% |
| International Monetary Fund (IMF) | 5.1% |
| Asian Development Bank (ADB) | 5.2% |
Various sources
The World Bank cut its forecast for Indonesia's 2026 economic growth from 4.8 percent year-on-year (y/y) in the October 2025 edition of its East Asia and Pacific Economic Update to 4.7 percent (y/y) in the April 2026 update due to headwinds from higher global crude oil prices and risk-off sentiment that is affecting investor sentiment.
This is actually part of a wider economic slowdown. While the World Bank expects growth in developing East Asia and Pacific to remain above the global average, it sees a slowing growth rate in the years ahead, from 5.0 percent (y/y) in 2025 to 4.2 percent (y/y) in 2026 and 4.4 percent (y/y) in 2027. Underlying factors are China’s continued economic deceleration and the negative growth effect of higher energy prices. China continues to cope with subdued domestic demand, subdued external demand, and difficulties in the property sector.
Responding to the World Bank downgrade, Indonesian Finance Minister Purbaya Yudhi Sadewa said the revision is imprecise and took into account high oil prices. If oil prices return to normal levels within a month, Purbaya expects the World Bank to adjust its prediction. The Indonesian government, indeed, remains unwilling to revise its target for economic growth in 2026, hence it stays at 5.4 percent (y/y). Regarding Q1-2026, the government eyes growth in the range of 5.5 - 5.6 percent (y/y).
Meanwhile, in late March 2026, the OECD revised down its 2026 economic growth forecast for Indonesia to 4.8 percent (y/y) from 5.0 percent (y/y) earlier, while projecting Indonesian inflation to accelerate to 3.4 percent (y/y), as global energy shocks and trade uncertainty amid geopolitical turmoil weigh on the outlook.
However, the Asian Development Bank (ADB) expects Indonesia's economy to accelerate from a realized 5.1 percent (y/y) growth rate in 2025 to 5.2 percent (y/y) in both 2026 and 2027. According to the April 2026 outlook of ADB, Indonesia's economic growth edged up in 2025 on the back of resilient domestic demand. And private consumption is expected to remain the primary engine of the economy in 2026. It did warn though that downside risks have intensified due to the Iran War.