• Indonesias GDP grew 5.29% YoY an expected slow down from Q1s 5.61% YoY, yet surpassing market expectations once again. The deceleration was very much anticipated, especially given the significantly worse economic backdrop in Q2. The prolonged war has crept, driving up cost across the board with nominal GDP growing at a considerably faster 10.17% YoY.
• Indonesia is no longer benefitting as much as it once did during the previous energy crisis. In nominal terms, net exports have turned negative for the first time since 2019, while continuing its negative growth contribution for the third consecutive quarter.
• Meanwhile, consumer consumption continued to slow even nominal growth remained subdued despite higher inflation, with actual volume growth faring even worse (5.06% vs 5.52% in Q1-26). Suggesting that earlier consumption strength was merely driven by a low base and relied heavily on the multiplier effect of government expenditure.
• Fortunately, the growth is carried by accelerating investment (6.87% YoY) alongside government expenditure even when the latter slowed subsequently contributing 2.06% and 1.07% toward GDP growth. This trend appears to contradict the deterioration in the manufacturing PMI, but the devil is in the detail. The investment acceleration was largely driven by government priority programmes, most notably the red-white cooperatives, in line with the pickup in the construction sector, contributing 0.62% to growth (up from 0.53% in Q1-26), which may not be picked up by the index.
• The question is whether this will be sustainable. The government has implemented various efficiency measures on the budget side, with the government seems to offload some of that weight by channeling through SOE banks lending. But every room has its ceiling for the banks, its their LDR. The MoF appears to have noticed this, with the government standing ready to inject additional liquidity into SOE banks. While it may have helped Indonesia achieve its current growth through accelerating investments, if not accompanied by a balancing capital inflow, it results in a trade-off with depreciation.
• Looking ahead, rising inflation compounded by a weakening Rupiah looks set to be the antagonist of the second half, as purchasing power continues to erode should the situation remain unchanged. All of this is unfolding while Indonesia is pushing for extra liquidity in an increasingly tighter global liquidity environment. Growth is expected to remain resilient, though a further moderation looks likely, keeping our full-year growth forecast at 5.1%.

Versi lengkap report ini (dan report sebelumnya) dapat diakses lewat link berikut: https://s.id/BCA_REI