Households Begin to Hold Back Spending as Consumption Fundamentals and Policy Certainty Become Critical

Household consumption remains one of the main pillars of Indonesia’s economy in 2026. However, several indicators are beginning to show greater caution among consumers, making the resilience of household spending in the second half of the year an increasingly important concern.

GREAT Institute recorded real household consumption at approximately Rp1,887.7 trillion. However, after strengthening during Ramadan and Eid al-Fitr, retail sales weakened again and contracted 3.9 percent year-on-year in May 2026. The Consumer Confidence Index also declined from 127.0 in January to 117.8 in June, although it remained within optimistic territory.

GREAT Institute economist Trisha Devita Indraswari argues that this development highlights the distinction between households’ ability to spend and their willingness to spend. When uncertainty surrounding future income and employment increases, households tend to become more cautious, postpone non-essential expenditure, and retain savings for longer as a precautionary buffer.

The pressure is even more visible in purchases of high-value assets. Primary home sales contracted 25.67 percent year-on-year in the first quarter of 2026 and remained down 2.36 percent in the second quarter. Housing prices, however, continued to rise, with the Residential Property Price Index increasing 0.61 percent in the first quarter and 0.69 percent in the second quarter. The weakness in the housing market is therefore more evident in falling transaction volumes than in declining prices.

Dependence on financing is also important, as mortgages account for around 70.05 percent of home purchases. Mortgage growth has remained in single digits since March 2025 and weakened to approximately 4.5 percent year-on-year in June 2026. Commercial home sales also fell from 19,731 units in the first half of 2025 to only 9,618 units in the first half of 2026, a decline of around 51 percent. Purchases through the FLPP subsidized housing scheme among lower-income households also decreased.

Taken together, these indicators show that pressure on purchasing power is not limited to everyday consumption. Greater caution is also becoming visible in decisions to purchase durable goods and assume long-term financial commitments. Households can still maintain spending on essential needs, while secondary expenditure and purchases requiring financing are more easily postponed.

To sustain consumption in the second half of the year, GREAT Institute emphasizes the need to strengthen household fundamentals. Creating quality employment, increasing real incomes, controlling living costs, and restoring confidence in the economic outlook will be important. Stimulus may support short-term demand, but sustainable consumption ultimately depends on income, job security, and household financial resilience.

Confidence is also becoming an important issue on the investment side. GREAT Institute recorded investment realization of Rp1,010.6 trillion in the first half of 2026, equivalent to 49.5 percent of this year’s investment target. However, the increase in Indonesia’s investment value needs to be considered alongside the country’s competitive position within ASEAN.

Foreign and domestic investment realization nearly tripled from Rp693 trillion in 2017 to Rp1,931 trillion in 2025. Yet Indonesia’s share of investment entering ASEAN declined from 13.2 percent to 8.8 percent over the same period, while ASEAN’s share of global investment increased from 8.8 percent to 15 percent.

According to GREAT Institute, this indicates that investment competition is no longer based solely on cost advantage but is increasingly shifting toward ecosystem advantage. Investors now consider industrial ecosystems, infrastructure, energy, labor, market access, and regulatory certainty. Policy predictability has therefore become an important factor in strengthening Indonesia’s investment appeal.

Regulatory certainty has drawn particular attention because several policies have changed within relatively short periods, including regulations governing foreign exchange earnings from natural-resource exports and land certification procedures. GREAT Institute argues that the issue is not whether regulations may change, but whether changes are formulated comprehensively, coherently, and consistently so that regulatory risks for businesses can be reduced.

The challenge for the second half of the year is therefore not simply maintaining consumption figures or increasing the nominal value of investment. Household resilience requires stronger incomes and employment, while higher investment requires policy certainty and a stronger economic ecosystem. Trust connects the two: households need confidence before making long-term financial commitments, while businesses need predictability before increasing investment.

Sources:

1. Investor Daily – Konsumsi Semester II Terancam Melambat
2. Bisnis.com – GREAT Institute: Konsumsi Masih Tumbuh, tapi Rumah Tangga Mulai Tahan Belanja
3. Industry.co.id – GREAT Institute: Meski Investasi Naik, Indonesia Butuh Kepastian Kebijakan
4. ANTARA – Ekonom Nilai Penguatan Fundamental Rumah Tangga Jaga Konsumsi
5. Industri Properti – GREAT Institute Beberkan Sinyal Pelemahan Pasar Perumahan