Jakarta. The Institute for Development of Economics and Finance (Indef) expects Indonesia’s economic growth to remain under pressure in 2026, hovering around 5%, amid mounting global and domestic headwinds.

The think tank also projects the rupiah could weaken beyond Rp 17,000 per US dollar, while inflation is forecast to stay around 3%.

Indef Executive Director Esther Sri Astuti said at least four key factors would limit stronger growth momentum.

The first is rising global uncertainty, driven by geopolitical conflicts, China’s economic slowdown, and increasing fragmentation in global trade. These conditions are weighing on exports, capital inflows, and rupiah stability. “Indonesia’s economy remains highly dependent on global conditions. When the global economy is hit by shocks, the domestic economy becomes vulnerable as well,” Esther said during an Indef online discussion on Monday.

The second factor is a still-fragile recovery in domestic consumption. Elevated food and energy prices, coupled with household purchasing power that has yet to fully rebound, continue to restrain spending.

Third, investment has yet to become truly expansionary and productive, as it remains concentrated in capital-intensive projects with relatively limited multiplier effects.

The fourth constraint lies in labor market conditions. A large share of Indonesia’s workforce remains employed in the informal sector, limiting income growth at the household level. “This is influenced by various issues, ranging from skills mismatch to education levels that are not yet fully aligned with labor market needs,” Esther said.

To lift economic growth above 5%, and potentially toward 6% to 8%, Esther stressed the need for more targeted and strategic policy measures.

One priority is maximizing household consumption, which remains the backbone of the economy, contributing more than 55% to gross domestic product. “Household consumption has long been the main driver of growth. The key now is to protect purchasing power by easing pressures through both fiscal and non-fiscal incentives,” she said.

Beyond consumption, Esther emphasized the importance of strengthening investment as a growth engine, particularly by adopting a more sector-specific approach toward foreign investors. “Labor-intensive sectors should be prioritized, especially given that unemployment remains relatively high,” she added.

She also highlighted the need to reinforce manufacturing industries that produce higher value-added goods and are integrated with domestic supply chains, as well as export-oriented sectors that serve as key sources of foreign exchange. “Value-added manufacturing, such as food and beverage, electronics, and similar industries, must be pushed further so our exports become more resilient,” Esther said.

At the same time, government spending should focus on quality rather than merely budget absorption. Every rupiah spent, she argued, must be tied to clear performance indicators and measurable economic impact.

“Government spending is not just about absorption. Every rupiah must deliver real performance and tangible multiplier effects for the economy,” she concluded.

Add as a preferred source on Google +