Jakarta. Bank Indonesia trimmed its 2026 global growth forecast to 3.1% while maintaining Indonesia’s GDP outlook at 4.9%–5.7%, as escalating Middle East tensions fuel inflation and cloud the global economic outlook.

Governor Perry Warjiyo said rising crude oil prices driven by geopolitical tensions have weighed on the global outlook, while inflation pressures are expected to intensify despite some easing in US trade tariffs.

“Global economic growth in 2026 is projected to slow to 3.1%. This condition narrows the room for global monetary easing, including the potential delay in cuts to the Fed Funds Rate,” Perry said during a press conference following the central bank’s policy meeting on Tuesday.

Bank Indonesia now expects global inflation to rise to 4.1%, up from an earlier projection of 3.8%, reflecting the pass-through effects of higher energy prices and ongoing supply disruptions.

The central bank also flagged worsening global financial conditions, marked by a stronger US dollar and rising yields on US Treasury, as Washington ramps up fiscal spending linked to the conflict.

“US Treasury yields continue to increase due to widening fiscal deficits, including higher war-related spending,” Perry said.

The shift has triggered capital flows into safe-haven assets, putting pressure on emerging market currencies and complicating macroeconomic management in developing economies.

In response, Perry stressed the need for stronger coordination between fiscal and monetary authorities to safeguard external stability while sustaining domestic growth.

Despite the challenging global backdrop, Indonesia’s economy showed resilience in the first quarter of 2026, supported by stronger household consumption during major religious holidays and government stimulus measures, including the disbursement of holiday allowances.

“Policy synergy between the government, Bank Indonesia and other stakeholders continues to be strengthened to maintain domestic demand. We remain optimistic that economic growth will stay within the range of 4.9% to 5.7%,” Perry said.

Bank Indonesia reiterated the importance of timely and coordinated policy responses to mitigate spillover risks from the Middle East conflict and preserve the country’s economic recovery momentum.

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