Key facts
- Indonesia's economy likely grew 5.10% year-on-year in Q2, down from 5.61% in Q1.
- Consumer demand slowed, with retail sales contracting in April and May.
- Net exports offered less support due to higher energy import costs.
- Indonesia recorded a $1.61 billion trade deficit in May, its first in six years.
- Government spending is expected to continue supporting growth.
Indonesia's economy is projected to have slowed in the second quarter, with economists polled by Reuters anticipating 5.10% year-on-year growth, down from 5.61% in the first quarter. This deceleration is attributed to weakening consumer demand, evidenced by retail sales contractions in April and May, and reduced support from net exports. Higher energy import bills contributed to Indonesia recording its first trade deficit in six years in May.
Despite these headwinds, government spending is expected to remain a supportive factor, though its contribution may moderate after a significant surge in the first quarter. Analysts noted that while credit growth remained robust, it was unlikely to fully offset broader signs of cooling economic activity. The central bank, Bank Indonesia, has implemented interest rate hikes to support the rupiah, which has depreciated against the dollar this year.
Looking ahead, economists forecast growth to remain around 5% in the coming quarters. However, concerns persist regarding the impact of tightening financial conditions, external uncertainties, and cautious private sector sentiment. Economists also highlighted that the headline growth figures mask a widening income divide and fall short of President Prabowo Subianto's target of 8% growth by 2029.