Business leaders cite resilient domestic demand, recovering manufacturing activity and stronger supply chains, while warning external risks could weigh on second-half growth
Indonesia’s economy grew 5.29% in the second quarter of 2026 from a year earlier, the Central Statistics Agency (BPS) said, outpacing growth of 5.12% recorded in the same period last year and underscoring the resilience of domestic demand despite heightened geopolitical tensions in the Middle East.
The economy expanded 5.45% in the first half of 2026, supported by household spending and broad-based growth across major industries, according to BPS data.
Yukki Nugrahawan Hanafi, chairman of the Board of Trustees of the Indonesian Logistics and Forwarders’ Association (ALFI) and senior vice president of FIATA, said the second-quarter performance was notable because it came during what he described as the year’s most challenging period.
“The national economy faced simultaneous pressures in the second quarter from the fading seasonal boost of Ramadan and Eid al-Fitr, which lifted first-quarter growth to 5.61%, and weaker export demand linked to geopolitical tensions,” Yukki said.
“Growth of 5.29% shows that domestic demand and the resilience of Indonesia’s supply chains were stronger than many expected.”
Household consumption remained the largest contributor to economic activity, accounting for 53.32% of gross domestic product (GDP), reflecting resilient domestic demand, Yukki said.
Manufacturing contributed the largest share of economic growth at 0.90 percentage points, followed by trade at 0.83 percentage points, construction at 0.62 percentage points, and information and communication services at 0.48 percentage points. Together, the five largest sectors accounted for about 63.73% of Indonesia’s GDP.
Yukki said challenges remained for the second half of 2026, particularly after Indonesia recorded trade deficits in May and June following 72 consecutive months of trade surpluses. He also cited exchange rate pressures as a risk to business costs and investment planning.
He said Indonesia should accelerate industrialisation and strengthen value-added manufacturing to reduce reliance on consumption-led growth and improve productivity, investment, exports and domestic value creation.
“Strengthening foreign trade is essential to maintain foreign exchange reserves and external stability, while exchange rate stability is critical for providing cost certainty for businesses,” Yukki said. “Accelerating industrialisation will also be crucial for Indonesia’s long-term economic transformation.”
Yukki also pointed to signs of improvement in manufacturing activity at the start of the third quarter. The S&P Global Indonesia Manufacturing Purchasing Managers’ Index (PMI) rose to 50.2 in July from 46.9 in June, returning to expansion after four months of contraction, while the output index increased to 50.4 from 44.4.
“The return of the PMI to expansion is a leading indicator for businesses,” Yukki said. “Higher production is expected to translate into stronger cargo volumes over the next four to eight weeks.”
To support growth through the remainder of 2026, Yukki called for faster digitalisation of the National Logistics Ecosystem (NLE), broader export market diversification through trade agreements, and stronger connectivity between ports and industrial estates, including greater utilisation of Patimban Port and logistics hubs outside Java.
He added that well-targeted government spending, faster productive investment and sustained household purchasing power would be key to keeping economic growth within the government’s 4% to 6% target range this year.
