Standard Chartered’s Aldian Taloputra notes that Indonesia’s GDP growth accelerated to 5.6% year-on-year in the first quarter of 2026, helped by front-loaded fiscal stimulus, seasonal festival spending and the circumscribed impact of higher oil prices. The bank expects growth to leisurely as this one-off support expires, maintains its 2026 GDP forecast of 5.2% and now projects a broader fiscal deficit in 2026 of 2.9% of GDP.

Q1 strength seen as unsustainable

“Indonesia’s GDP growth accelerated to 5.6% y/y in the first quarter (from 5.4% in the previous quarter), the fastest pace since 2022.”

“Despite a strong first-quarter headline, economic growth remains government-led; private sector momentum remains modest given cautious business sentiment and subdued formal sector expansion.”

“We maintain our GDP growth forecast for 2026 at 5.2%. Fading seasonality, weakening fiscal impulse and slow improvement in the labor market situation in the formal sector may negatively affect the growth dynamics in the coming quarters, especially with the still cautious mood of entrepreneurs.”

“Government subsidies intended to cover most of the burden of rising energy costs support consumption, but may limit fiscal space for more productive spending and burden fiscal credibility.”

“We now see a broader fiscal deficit of 2.9% of GDP in 2026, compared to our earlier forecast of 2.7%. We expect the government to keep the deficit below the 3% of GDP ceiling by reallocating expenditure, optimizing revenue collections and using sub-par financing.”

(This article was created with the facilitate of an artificial intelligence tool and has been reviewed by an editor.)