No obstacle hinders growth: JPMorgan revises Indonesia's forecast to 5.2% in 2026

Deconstructionist · 2026-02-22T19:06:57+00:00

JPMorgan has raised its Indonesia GDP growth forecast for 2026 from 4.9% to 5.2%, reflecting better-than-expected performance but warning of a loss of momentum due to fiscal stimulus cuts. The government faces challenges in maintaining sustainable growth, while the central bank is expected to ease monetary policy to support demand. The situation requires a delicate balance between fiscal austerity and monetary flexibility.

Deconstructionist

2026-02-22 19:06:57

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JPMorgan has just significantly revised its economic outlook for Indonesia. The institution raised its GDP growth estimate for 2026 from 4.9% to 5.2%, reflecting stronger-than-expected performance in the last quarter of 2025. This revision contrasts with earlier scenarios that pointed to a slowdown, opening new perspectives on the Asian country’s economic trajectory.

Stronger Growth and Forecast Adjustment

According to analyst Jin Tik Ngai, the initial momentum in 2026 is likely to weaken as the effects of fiscal stimulus programs and sector-specific incentives gradually diminish. Data on GDP growth in the fourth quarter of 2025 showed stronger-than-expected resilience, prompting the upward revision. However, this dynamism is not expected to be sustainable throughout the year, especially considering upcoming budget constraints.

Limits of Fiscal Policy and the Risk of Deceleration

If the Indonesian government maintains its commitment to a fiscal deficit limit of 3%, the boost from public spending will be significantly reduced in the first half of 2026. This budget restriction will not immediately halt economic activity but will force growth to increasingly depend on other factors such as private consumption and investment. Transitioning from an economy driven by stimulus to a more self-sustaining growth model is one of the main challenges for policymakers in the region.

Central Bank Likely to Ease Monetary Policy

Despite optimistic growth prospects, the analyst believes it is highly likely that Indonesia’s central bank will continue its cycle of monetary easing. Two consecutive rate cuts of 25 basis points are expected in the second quarter of 2026, contingent on exchange rate stability. This stance by the monetary authority reflects the priority of maintaining currency competitiveness and supporting domestic demand, factors that seem to complement the ongoing fiscal consolidation.

Indonesia’s economic outlook for the coming months presents a delicate balance: accelerated short-term growth should not hinder the implementation of fiscal austerity measures, while monetary policy remains accommodative during this transition. The success of this strategy will depend on the coordination between monetary and fiscal authorities and the resilience of the exchange rate amid international capital flows.

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