Economic Update - ID GDP - Resilience with Caveats

Beyond the Headline Numbers

Indonesia's economy expanded by 5.47% YoY in 3Q26, accelerating from 5.29% in the previous quarter and exceeding market expectations of 5.18%. On a sequential basis, GDP grew 1.59% QoQ, bringing cumulative growth in 9M26 to 5.45%. The stronger-than-expected performance reflects resilient domestic demand, improved export activity, and continued fiscal support.

However, the headline acceleration should be interpreted alongside the underlying composition of growth, as several key private-sector components have yet to show a meaningful improvement in momentum. Household consumption remained relatively stable, while investment growth moderated, suggesting that the recovery is not yet broadening evenly across domestic demand.

Fiscal Muscle Meets Industrial Momentum

From the expenditure side, household consumption remained the largest contributor to GDP, growing 5.04% YoY and accounting for 51.97% of GDP, while government consumption expanded 8.95%, although moderating from 15.97% in 2Q26. Gross fixed capital formation (GFCF) also moderated to 6.06% from 6.87%, suggesting that private investment has yet to gain further momentum.

On the production side, manufacturing accelerated to 5.87%, supported by food and beverage, chemicals, and basic metals industries. Higher exports of palm oil derivatives and the implementation of the B50 biodiesel mandate since July boosted FAME production and related industrial activity.

This points to the growing contribution of commodity downstreaming in supporting domestic value added, although the broader economic multiplier will depend on how effectively these activities generate local investment and supply-chain linkages.

Meanwhile, exports improved to 4.59% from 4.07%, but remained below import growth of 7.31%, leaving net exports as a drag on GDP. The combination suggests that fiscal expenditure and downstreaming initiatives remain important growth anchors, while private demand and external trade have yet to provide a stronger and more balanced contribution.

A Recovery Yet to Reach Everyone

Despite stronger headline growth, improvements in economic activity have yet to translate fully into higher-quality employment. The number of employed people increased by 1.44 million to 147.99 million in August 2026, while the unemployment rate declined to 4.75% from 4.85% a year earlier. However, informal employment accounted for approximately 1.03 million of the additional jobs, compared with only 410,000 in formal employment, pushing the informal worker share up to 57.93% from 57.80%.

The increase in underemployment to 8.68% from 7.91% further highlights the uneven quality of labor market absorption. This suggests that a growing number of workers remain unable to secure sufficient working hours, potentially constraining their income-generating capacity. The concentration of employment in relatively low-productivity sectors also underscores the structural challenge of generating more skilled and higher-value-added jobs.

In our view, the divergence between employment growth and job quality could limit the transmission of stronger GDP growth into household purchasing power. While lower unemployment reflects improving labor absorption, the prevalence of informal employment and underemployment points to persistent income insecurity. This could weigh on the sustainability of household consumption, particularly as temporary fiscal support and seasonal spending tailwinds gradually fade.

The Next Test for Growth

Overall, Indonesia's 3Q26 growth performance offers a positive signal for the near-term economic outlook, but the composition of expansion warrants a closer look. Stronger government spending and manufacturing activity helped lift growth above expectations, while the Rupiah strengthened toward Rp17,880/USD following the release. Nevertheless, moderating investment growth and a widening drag from net exports indicate that the acceleration has yet to translate into a more broad-based recovery in private-sector activity.

For 4Q26, the government's approximately Rp30tn in year-end social assistance and wage subsidies should provide an additional buffer for household consumption and help sustain economic momentum. The more important question, however, is whether this policy-driven support can generate stronger private-sector confidence and investment, particularly as fiscal stimulus gradually normalizes. We therefore maintain our 2026 GDP growth forecast at 5.1%–5.3%, underpinned by resilient domestic demand, fiscal support, and ongoing downstreaming initiatives. In our view, the next phase of growth will depend less on additional fiscal stimulus and more on the ability of private investment and external demand to gain traction.

TUGU - The Next Big Leap

TUGU - The Next Big Leap

Ryan Yani Santoso

PT Asuransi Tugu Pratama Indonesia Tbk

04 February 2025 - 03.53pm

TUGU - The Next Big Leap

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