May 6, 2026
JAKARTA – The Indonesian economy exceeded expectations in the first quarter as the country posted the strongest gross domestic product growth in years, but the performance is clouded by the Iran war that might change the growth story for the rest of the year.
National output from January through March was up 5.61 percent year-on-year (yoy), according to data presented by Statistics Indonesia (BPS) on Tuesday, marking the highest rate since the third quarter of 2022, when economic activity benefited from a commodity price boom.
Coordinating Economy Minister Airlangga Hartarto said in a press conference following the data publication that the growth rate was “good, beyond expectations of various institutions”, hinting at economists’ projections of around 5.4 percent.
The latest figure is up from the 5.39 percent annual growth rate recorded in preceding quarter and far outpaces the 4.87 percent posted in last year’s first quarter.
Household spending, which accounts for the largest share in Indonesia’s economy, and hence in the GDP calculation, grew 5.52 percent yoy on the back of a seasonal boost from Ramadan and Idul Fitri, marking an acceleration from 5.11 percent growth recorded in last year’s fourth quarter.
The Islamic festive period generally drives consumer spending in Indonesia, home to the world’s largest Muslim population, while the government also provided a value-added tax discount on airfares to support travel at a time when millions of Indonesians traditionally come together for family reunions.
Gross fixed capital formation (GFCF), which reflects investment in fixed assets like buildings, machinery and equipment, expanded 5.96 percent yoy in the quarter, which BPS head Amalia Adininggar Widyasanti attributed partially to government priority programs, such as the extension of the MRT Jakarta network.
Speaking at the press conference in Jakarta to present the quarterly GDP data, she also mentioned the free nutritious meals program and the Red and White cooperatives program as driving forces of GFCF, since both initiated investment in buildings, equipment and vehicles.
The most pronounced expansion in economic output in the first quarter was seen in government expenditure, which grew 21.81 percent yoy.
The strong increase can be partly explained by unusually low government expenditure in last year’s first quarter, when President Prabowo Subianto’s administration restructured the state budget, causing a statistical base effect.
However, state spending accounted for just 6.72 percent of economic activity in the first three months of the year, down from 9.95 percent in the fourth quarter of 2025, making it a fairly small part of Indonesia’s economy. By contrast, consumer spending, long the main growth engine in the country, accounted for the lion’s share of overall national output in the first quarter at 54.36 percent.
Airlangga said the government was counting on state spending to boost growth in the second quarter by disbursing a 13th-month salary for civil servants and introducing spending incentives for consumers, such as subsidies for electric vehicle purchases that are currently in the works.
The senior minister acknowledged economic risks posed by the United-States-Israeli war against Iran, which has sent oil prices up sharply, affecting logistics and transportation around the world and stoking inflation in many countries.
Despite the global market pressure, Jakarta has vowed not to increase the fixed prices of subsidized fuels, thereby containing inflation, but Airlangga said the government was monitoring the situation and devising policy options.
“What’s important is to have scenarios to safeguard [the economy], and these scenarios are dynamic in nature, meaning they’re not cast in stone until the end of the year. We’ll see how dynamics play out, and we’ll mitigate [any negative impacts] dynamically,” said Airlangga.
Finance Minister Purbaya Yudhi Sadewa said in a press conference on Tuesday that “we have to be ready for a prolonged conflict [in the Middle East]” and become accustomed to high oil prices.
He reiterated his earlier position that the state budget could bear the subsidies even if oil prices should average US$100 per barrel this year, far above the presumed $70 figure set in the state budget.
Exports grew just 0.9 percent yoy in the first quarter, while import rose 7.18 percent, yet the former still exceeded the latter, resulting in a small net positive effect for GDP, though accounting for less than 1 percent of overall output.
BPS’s Amalia revealed that all business sectors were “growing”, except for mining and procurement of electricity and gas. Manufacturing, trade and agriculture, the three business sectors that made up almost half of the country’s GDP, were up by 5.04, 6.26 and 4.97 percent yoy, respectively.
The fastest growth was registered in the food and beverages industry at 13.14 percent, thanks to the festivities and the government’s free meals program. Transportation was also boosted by increased mobility during Idul Fitri, growing by 8.04 yoy percent in the first quarter.
Permata Bank economist Faisal Rachman wrote in an analysis on Tuesday that Indonesia’s economic outlook this year was subject to “predominantly external” key risks, mentioning trade disruption, geopolitical tensions and a possible slowdown in China’s economic growth.
A drawn-out Mideast conflict would keep global energy prices elevated, and reduce room for interest rate cuts and pile pressure on the state budget, which Faisal said might limit the scope of an expansionary fiscal policy.
He projected full-year growth between 5.1 and 5.3 percent but noted it could be higher if external pressures ease, or lower “if the government is unable to effectively balance its pro-growth agenda with the need to preserve stability”.
Rahma Gafmi, an economics professor at Airlangga University, wrote in an analysis on Monday that the strong growth figure could be attributed to the government expediting spending at the start of the year, resulting in a GDP figure that felt at odds “with reality on the ground”.