DBS cuts Indonesia’s 2026 economic outlook to 5.1% after growth seen peaking in the first quarter.
JAKARTA – DBS Group Research has lowered its forecast for Indonesia’s economic growth to 5.1% in 2026 as momentum is expected to moderate after growth peaked at 5.6% in the first quarter of 2026.
Radhika Rao highlighted that economic growth in the first quarter of this year marked the strongest expansion since the third quarter of 2022, generally supported by holiday-related consumption, government spending, and a low-base effect.
“The momentum set to moderate as real activity could be dampened by high energy prices and pressure to consolidate public finances.,” Rao said in a report received by IDNFinancials on Wednesday (13/5).
She also projected quarterly growth momentum would soften amid stock market volatility and supply chain disruptions affecting companies due to the US-Iran war.
Oil supply shortages also put Indonesia at risk of widening its fiscal deficit beyond 3%.
“For instance, a scenario under which ICP averages $92.5bl for the year with an exchange rate at USDIDR 17000, could see the deficit edge above the 3.0% of GDP deficit threshold by 20bp,” she said.
Nevertheless, DBS Research believes Indonesia can maintain its fiscal deficit below 3%, supported by frontloaded government spending in the first quarter, which is expected to ease in subsequent quarters.
In addition, distribution for the Free Nutritious Meals (MBG) programme is expected to slow in the second quarter.
“Along with broader pronouncements of plans to lower allocation to the program might result in 0.2-0.4ppt of GDP worth room,” Rao added.
Apart from inflation reaching 3.9% in the first quarter due to fuel supply disruptions, another consequence of the US-Iran war is the weakening rupiah against the US dollar.
“Rupiah might surface as a bigger bother than inflation for the BI,” the DBS research team said.
As such, DBS said it would continue monitoring the rupiah’s performance this quarter, given that efforts to manage the fiscal deficit are only expected to bear fruit in the second half of 2026. (ZH)
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