Indonesia's Economic Growth Beats Expectations — Update

By Ying Xian Wong

Indonesia's economic growth beat expectations in the third quarter, supported by strong domestic demand.

Southeast Asia's largest economy expanded 5.47% from a year earlier, accelerating from 5.29% growth in the second quarter, data from the country's statistics agency showed Thursday.

That beat the median forecast of 5.18% growth in a Wall Street Journal poll of seven economists.

From the previous quarter, Indonesia's economy expanded 1.59%.

Manufacturing, trade, construction, and information and communication sector were the main contributors to third-quarter growth on the production side, said Statistics Indonesia official Moh. Edy Mahmud.

Growth was supported by increased production to meet stronger domestic demand, he said.

Household consumption was the largest contributor to GDP by expenditure, followed by investment and government spending. Higher household spending, supported by increased mobility and the government's priority development programs, helped drive growth.

The stronger growth came despite heightened market volatility, as Indonesia faced pressure from the prolonged Middle East conflict and a selloff in domestic assets.

The selloff followed a recent warning from MSCI that it could reclassify Indonesia as a standalone market, citing insufficient progress in addressing concerns over market transparency and investability.

The stronger-than-expected GDP has reinforced expectations that Indonesia's economy will maintain its growth momentum, despite external pressures and financial-market uncertainty.

Barclays maintained its forecast for GDP growth at 5.4% in both 2026 and 2027, up from 5.1% in 2025, after the economy expanded by an average of 5.5% in the first nine months of 2026.

The bank sees slightly more upside than downside risk to its forecast, following Finance Minister Suahasil Nazara's recent comment that growth could reach around 5.5% this year.

A narrower-than-expected fiscal deficit in the first nine months suggests the government has room to increase spending in the fourth quarter, Barclays economist Brian Tan said in a note.

While concerns over the stock market and a weaker rupiah could weigh on sentiment, their impact on growth is likely to be limited, he said.

Tan expects Bank Indonesia to raise its policy rate twice by 25 basis points each in 2027, bringing it to 6.25%, as the rupiah faces continue pressure from MSCI-related uncertainty and a hawkish U.S. Federal Reserve.

The increases are likely in the second and third quarters, although their timing will depend on currency volatility, he said.

In the meantime, the central bank is likely use hedging incentives to support the rupiah but could resume issuing Bank Indonesia rupiah securities to defend the currency if depreciation pressures intensify, he added.

Write to Ying Xian Wong at yingxian.wong@wsj.com

(END) Dow Jones Newswires

November 05, 2026 00:56 ET (05:56 GMT)