Jakarta. Asian economies, including Indonesia, are coming under pressure after the International Monetary Fund revised down its global growth outlook, citing higher energy costs and rising uncertainty from the Middle East conflict.

In its World Economic Outlook released on Wednesday, the IMF now expects global growth to reach 3.1% in 2026, below earlier forecasts and down from 3.4% in 2025, as rising energy prices and uncertainty weigh on activity. Inflation is also projected to increase to 4.4% this year, reflecting higher costs for fuel and other commodities following disruptions to global energy supply.

The Fund said last year’s economic momentum, supported by resilient private sector activity, favorable financial conditions, and a technology-driven boost, has been interrupted by the conflict, particularly due to risks to oil and gas flows through key shipping routes.

“The war has halted the momentum,” IMF Economic Counsellor Pierre-Olivier Gourinchas said on Wednesday.

Asia Faces Rising Costs

In Asia, the impact is expected to be uneven but increasingly visible. China’s growth is projected at 4.4% in 2026, slightly below earlier estimates, as strong exports are offset by weak domestic consumption. The IMF said this imbalance could become a growing challenge, with the economy needing to rely less on external demand and more on household spending.

The IMF projects Indonesia’s economy to slow to 5% in 2026 from 5.1% in 2025. Southeast Asia’s largest economy is then expected to rebound to 5.1% in 2027 and stabilize at 5.2% between 2028 and 2031.

Across emerging Asia, governments are also dealing with tighter fiscal space as public debt rises, limiting their ability to respond to shocks.

“With a rising public debt trajectory, fiscal space is much thinner than before. Price caps, subsidies, and similar interventions are popular, but they distort prices. They're often poorly designed, hard to unwind, and extremely costly. Most countries don't have that luxury anymore,” Gourinchas said.

While the IMF noted that many emerging economies in the region have become more resilient in recent years, higher energy and food prices are now testing that strength. Policymakers are being urged to focus on targeted and temporary support rather than broad subsidies.

As an emerging economy in Asia, Indonesia could face similar pressures from higher energy import costs and tighter global financial conditions. Rising prices may add pressure on the rupiah and inflation, while increased market volatility could lead to capital outflow risks.

The IMF has cautioned that governments should avoid broad subsidies and instead focus on targeted support to protect vulnerable groups.

Energy-importing economies, including many in Asia, are expected to face the greatest pressure, as higher import costs reduce purchasing power and weigh on growth.

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