Jakarta. Indonesia’s economy is projected to grow 5.2% in 2026, but it is lagging regional peers such as Malaysia and Vietnam in benefiting from the global surge in artificial intelligence investment, the World Bank said.

The World Bank upgraded Indonesia’s 2026 growth forecast by 0.5 percentage point from its April projection, citing a smaller-than-expected drag from higher energy prices as well as stronger government priority programs, state-linked investment and energy subsidies.

However, Indonesia has not benefited from integration into AI-related global value chains, unlike several economies in the region. The World Bank said the East Asia and Pacific (EAP) region’s 0.3 percentage point growth upgrade for 2026 was largely driven by high-tech investment and exports in countries participating in global AI value chains. The EAP is expected to grow 4.5% in 2026.

“Indonesia has not benefited from AI-related value chain integration, but its domestic demand growth is healthy,” the World Bank said in its report released in October.

Malaysia’s economy grew 5.7% in the first half of 2026, with manufacturing expanding 7.5% in the second quarter. The World Bank projects Malaysia’s full-year growth at 5.1% in 2026 and 4.7% in 2027. Its electrical and electronic exports, which account for nearly half of total exports, were boosted by strong AI investment.

Vietnam was the region’s strongest performer in the first half of 2026, with growth accelerating to 8.3%. The World Bank forecasts full-year growth of 7.4% in 2026 and 7.3% in 2027. Manufacturing, exports and public investment drove the expansion, while goods exports rose 22% year-on-year in August, led by electronics and machinery.

Investment in those sectors remained robust, with foreign direct investment reaching a five-year high in the first half of the year.

The Philippines also benefited from the global AI investment surge, although its broader economy faced significant energy-related pressures. Merchandise exports rose 13% in the first half of 2026, led by a 21% increase in electronics exports.

The World Bank said the broader regional growth outlook reflects the growing importance of AI-related trade. Countries more deeply integrated into fast-growing AI value chains have seen substantial upgrades to their export forecasts.

Across the region, China, Indonesia, Malaysia, the Philippines, Thailand and Vietnam exported a combined $1.4 trillion of AI-related goods in the 12 months through April.

Indonesia’s economy nevertheless started 2026 on a strong footing. Growth accelerated from 5.1% in 2025 to 5.4% in the first half of 2026, its strongest two-quarter average since 2022, supported by stronger private consumption and a surge in public spending around the turn of the year.

The World Bank attributed part of the increase in government spending to the earlier Ramadan and Eid period, front-loaded public-sector holiday bonuses and the accelerated rollout of the free nutritious meals program.

Momentum has since weakened. Indonesia’s manufacturing purchasing managers’ index fell to 49.3 in August, while consumer confidence declined to 116.8 in July.

The World Bank also flagged growing fiscal and external imbalances. The current account deficit is expected to widen to 1.5% of GDP in 2026 as the policy mix supporting near-term growth continues to weigh on external and fiscal balances.

As fiscal stimulus moderates, the World Bank expects Indonesia’s medium-term growth to rely more heavily on private investment. It forecasts growth at 5.2% in both 2026 and 2027, rising to 5.3% in 2028.

Meanwhile, the World Bank forecasts Malaysia to grow 5.1% in 2026 and Vietnam 7.4%, compared with Indonesia’s 5.2%.

“The region’s dependence on AI-related industrial activity has been a source of strength, but it could become a weakness if global AI activity slows or reverses,” the World Bank said.

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