GREAT Institute projects Indonesia’s economic growth in 2026 at between 5.3 and 5.6 percent. The projection, presented in the GREAT Mid-Year Economic Outlook 2026: Rebuilding Trust, Fostering Optimism, is supported by resilient domestic demand, continued business activity, and strengthening investment. However, the forecast represents conditional optimism, as pressure on purchasing power and persistent global uncertainty remain important risks.
Indonesia’s economy recorded cumulative growth of 5.45 percent in the first half of 2026. Consumption and fiscal support were key drivers, with government consumption rising 18.62 percent from the same period a year earlier, while household consumption grew 5.06 percent year-on-year in the second quarter. Moving into the second half, consumption is expected to remain the foundation of growth, but additional acceleration increasingly needs to come from investment and productive private-sector activity.
Although household consumption continues to grow, several indicators suggest that consumers are becoming more cautious. Retail sales contracted from April through June before being projected to return to slight growth of 0.9 percent in July. The Consumer Confidence Index also declined from 123.0 in April to 116.8 in July. Consumption has therefore not collapsed, but households are becoming increasingly selective about how they spend their income.
GREAT’s analysis gives particular attention to pressures on the middle class. In May 2026, confidence among middle-income consumers declined, accompanied by weaker perceptions regarding durable-goods purchases, employment availability, and savings. Pressure was also evident in long-term financial decisions, particularly housing. Commercial home sales weakened, purchases of subsidized housing through the FLPP program declined, and mortgage growth slowed. These developments indicate that the issue is not simply whether households have money to spend, but whether they are sufficiently confident about their future income, employment, and economic prospects to make long-term commitments.
Despite greater household caution, indicators from the business sector remain positive. Electricity consumption in the business sector increased 10.04 percent year-on-year, while industrial electricity consumption grew 6.54 percent. Commercial vehicle sales also increased 30.12 percent through June. These indicators are consistent with business operations continuing to expand.
Investment is therefore becoming increasingly important in maintaining growth momentum during the second half of the year. Investment realization reached Rp1,010.6 trillion in the first half of 2026, up 7.2 percent from the same period a year earlier. In July, investment credit grew 23.1 percent year-on-year, while working-capital credit rose 11.6 percent. However, this increase in financing needs to translate into actual private capital expenditure, expanded production capacity, and job creation to generate a stronger impact on the economy.
After substantial fiscal support in the first half, the government’s role increasingly needs to shift toward leveraging broader private-sector activity. Public spending remains necessary to support purchasing power, basic services, and development, but the quality of expenditure is becoming more important. GREAT Institute emphasizes a shift from spending more to spending better, accompanied by efforts to reduce investment barriers, improve regulatory certainty, accelerate projects, and ensure liquidity reaches productive economic activities.
The challenge becomes even greater heading into 2027. GREAT estimates that achieving the 6 percent growth target in the 2027 Draft State Budget would require approximately Rp8,666.6–Rp8,743.5 trillion in investment. The government is expected to account for only 4.82 percent and state-owned enterprises for 5.41 percent, leaving approximately 89.76 percent, or around Rp7,700 trillion, to come from households and the private sector. Growth therefore cannot continue to depend primarily on additional government spending. The State Budget needs to increasingly serve as a catalyst, while productive private investment and healthy household consumption assume a larger role.
The growth outlook also remains exposed to significant external pressures. During the first half of 2026, the average Global Economic Policy Uncertainty level was approximately 68 percent above its 2024 average, while the Geopolitical Risk Index was around 55 percent higher. Geopolitical risks, energy prices, tight global monetary policy, and changes in the global trading architecture remain potential sources of pressure for Indonesia. GREAT’s 5.3–5.6 percent projection, which is above the roughly 5 percent forecasts of the IMF and World Bank, therefore does not imply that economic risks have disappeared.
Beyond consumption, investment, and fiscal policy, GREAT Institute identifies trust as a crucial factor for sustainable growth. Policy uncertainty and weakening institutional credibility may encourage households to postpone consumption, companies to delay investment, and markets to demand higher risk premiums. Conversely, policy certainty, regulatory consistency, reliable data, and institutions that operate consistently can give households and businesses greater confidence to make longer-term economic decisions.
Indonesia’s economic fundamentals therefore continue to demonstrate resilience, and opportunities for stronger growth remain. The next challenge, however, is not merely to maintain the headline growth rate, but to convert resilience into productivity, higher-quality investment, better jobs, rising household incomes, and stronger confidence. Sustainable economic growth will depend on households once again feeling confident enough to make long-term decisions and businesses being willing to expand investment.
Sources:
- Jernih.co – Economy Still Growing, but the Middle Class Is Running Out of Breath: GREAT Institute Says Trust Will Be at Stake in 2027
- Investor Daily – Investment Becomes the Key Determinant of Economic Growth in the Second Half
- ANTARA – GREAT Institute Projects Indonesia’s Economic Growth at 5.3–5.6 Percent
- Okezone Economy – Investment Key to Indonesia’s Economy Growing Up to 5.6 Percent in 2026
- Harian Jogja – Indonesia’s 2026 Economic Growth Projected at 5.3–5.6 Percent
