Jakarta. Indonesia’s economy expanded 5.61% year-on-year in the first quarter of 2026, but the gains have yet to be fully reflected in business activity, according to a business association.

Shinta Kamdani, chairwoman of the Indonesian Employers' Association (Apindo), said companies are facing rising cost pressures despite signs of resilient domestic demand.

“Businesses are experiencing what we call an asymmetric impact of growth, where the economy continues to expand but the benefits are not evenly distributed, while cost pressures keep increasing,” she said on Wednesday.

According to Shinta, the current growth momentum has not fully translated into real business activity, particularly in sectors reliant on imported raw materials.

A key source of pressure has been the depreciation of the rupiah against the US dollar. The currency weakened from around Rp 16,800 per dollar at the start of the year to nearly Rp 17,400 by the end of the first quarter, raising production costs and squeezing margins.

“For import-dependent sectors, the weaker rupiah directly increases production costs, reduces profitability and in many cases limits business expansion,” Shinta said.

Economic growth in early 2026 has been driven largely by domestic consumption and seasonal factors. Several service-oriented sectors posted strong gains, including accommodation and food services, which grew 13.14%, transportation and warehousing at 8.04%, healthcare and social services at 7.62%, and wholesale and retail trade at 6.26%.

“These sectors clearly benefited from demand-driven expansion, particularly due to increased mobility and consumer spending during the holiday period,” she said.

In contrast, the manufacturing sector, long considered a backbone of Indonesia’s industrial base, contracted by 1.01% during the same period.

Shinta said the divergence highlights how headline gross domestic product (GDP) growth may appear solid, while many businesses at the micro level continue to face margin compression.

To sustain growth momentum, Apindo is urging the government to strengthen exchange rate stability, control inflation and implement policies that enhance industrial competitiveness.

“The 5.61% growth momentum needs to be maintained through stronger currency stability, inflation control and policies that improve competitiveness, particularly for manufacturing and labor-intensive industries,” she said.

Indonesia’s economy accelerated by 5.61% year-on-year (yoy) in Q1 2026 amid Iran war uncertainties, the statistics bureau revealed Tuesday, topping expectations.

Growth had shrunk by 0.77% from the previous quarter, data showed. The January-March growth exceeded the 4.87% that Southeast Asia’s biggest economy had booked in the same three-month period of last year.