Indonesia Q2 Growth Seen Below 5% as Weak Rupiah Hits Economy

JAKARTA, 6 AUGUST 2026 —

Indonesia's economy is forecast to grow 4.8% in the second quarter of 2026, weighed down by a weaker rupiah, higher energy prices, and a high base effect, according to the Institute for Economic and Social Research at the University of Indonesia's Faculty of Economics and Business (LPEM FEB UI). The estimated growth rate, which ranges between 4.78% and 4.82%, would mark a slowdown from the 5.12% growth recorded in the second quarter of 2025. The Central Statistics Agency (BPS) is scheduled to release official second-quarter GDP data on August 5.

The Indonesian economy has been facing significant challenges in recent years, including a high base effect that makes annual growth harder to sustain. In 2025, the second quarter saw a significant boost from Ramadan and the Eid al-Fitr holiday, which fell during that period and helped support consumption. However, this year, the holidays fell in the first quarter, leaving the second quarter without a similar seasonal boost. Additionally, external pressures such as higher energy prices and a weaker rupiah have fueled imported inflation, increasing production costs for businesses. The rupiah has weakened by more than 8% so far this year, hovering around Rp 18,000 to the dollar, its lowest level since the 1998 Asian financial crisis.

The current economic situation in Indonesia is characterized by sluggish growth, driven by a combination of internal and external factors. The government's decision to raise the price of Pertamax, a widely used non-subsidized gasoline brand, has also put pressure on household purchasing power by increasing transportation and other consumer costs. Furthermore, the lack of a significant seasonal boost in the second quarter has contributed to the slowdown in economic growth. According to Teuku Riefky, a macroeconomist and financial market economist at LPEM FEB UI, the economic growth figure in the first quarter of 2026 still raises several questions, and the estimated growth in the second quarter will be below 5%.

The economic slowdown in Indonesia is likely to have an impact on the Malaysian market, particularly in terms of trade and investment. As a major trading partner of Indonesia, Malaysia may see a decrease in exports to Indonesia, which could affect the country's economic growth. Additionally, the weaker rupiah may make Indonesian exports more competitive in the global market, potentially affecting Malaysian exporters. Details on the specific impact on the Malaysian market are not yet available, but it is likely that the slowdown in Indonesia's economy will have some effects on the region.

In terms of sector-specific impacts, the slowdown in Indonesia's economy is likely to affect industries such as manufacturing, construction, and consumer goods. The higher production costs and lower household purchasing power may lead to a decrease in demand for goods and services, affecting companies in these sectors. According to LPEM FEB UI, the economy is expected to grow around 5% for the full year, with a forecast range of 4.95% to 5.05%. This projection is broadly in line with forecasts from several international institutions, including the International Monetary Fund, the World Bank, and S&P Global Ratings, which expect Indonesia's economy to remain resilient and expand 5% this year.

The outlook for Indonesia's economy remains uncertain, with the government targeting 5.4% economic growth in the 2026 state budget, while Bank Indonesia projects growth in a range of 4.9% to 5.7%. The LPEM FEB UI forecast is more conservative, but still indicates that the economy is expected to grow, albeit at a slower rate than in previous years. As the situation continues to evolve, it is likely that the government and other stakeholders will closely monitor the economy and adjust their policies and forecasts accordingly. The release of the official second-quarter GDP data on August 5 will provide further insight into the state of the economy and may lead to revisions in forecasts and policy decisions.

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