Analysis: RI’s 5.29 percent growth tests sustainability of fiscal expansion

Statistics Indonesia's latest data reveals Indonesia's economy expanded 5.29 percent year-on-year in the second quarter of 2026, marking substantial growth above the 5 percent threshold. This marks an improvement from 5.12 percent in the same period the previous year, signaling sustained domestic economic activity despite global uncertainty and geopolitical tensions. President Prabowo Subianto's expansionary fiscal policies are credited for supporting this growth.

Economist Airlangga Hartarto highlighted Indonesia's resilience, stating the economy grew 5.29 percent even as global projections suggested only a 3 percent growth rate for this year. Manufacturing emerged as the primary growth driver, expanding 4.52 percent year-on-year, accounting for 18.5 percent of GDP. Within manufacturing, food and beverage production surged 6.51 percent, driven by processed fish, chicken meat, and dairy products.

Metal, computer, electronics, optical, and electrical equipment manufacturing grew 8.04 percent, propelled by electrical components, batteries, and equipment. Chemical, pharmaceutical, and traditional medicine sectors expanded 4.99 percent, fueled by chemical production.

Electricity and gas procurement showed the most rapid growth among major sectors, expanding 10.81 percent year-on-year, driven by electricity services. Accommodation and food service activities also exhibited strong growth, rising 10.6 percent, supported by increased hotel occupancy and catering due to the government's free nutritious meal program's expansion. Government spending on construction grew 6.68 percent year-on-year, primarily driven by the Red and White Cooperatives program.

While government spending propelled growth, the expenditure-side data suggests the government's role in sustaining this momentum. Government consumption expenditure grew 15.97 percent year-on-year, remaining high despite budget-efficiency measures. The government's continued funding for initiatives like the free meals program and Red and White Cooperatives could sustain growth, but their long-term sustainability hinges on whether they generate economic activity independent of fiscal support.

Household consumption, the largest component of the economy, grew 5.06 percent year-on-year, lagging behind overall growth and declining from 5.52 percent in the first quarter.