Indonesian economic growth tops 5% on consumption boost

06/02/2026 02:41 AST

Indonesia's economy picked up pace last year to grow more than five percent, data showed Thursday, thanks to a pick-up in consumption following a huge government stimulus package. The government unveiled a $1.5 billion package of economy-boosting measures in June including discounts for train, plane and ferry fares, as well as toll subsidies to boost tourism. It also disbursed additional social aid, while giving cash transfers to low-income workers and discounts on unemployment insurance premiums.

The spending was part of a drive to get growth close to President Prabowo Subianto's election pledge of eight percent by the end of his term. But Statistics Indonesia figures on Thursday showed Southeast Asia's biggest economy expanded 5.1 percent last year, up from 2024 but short of the 5.2 percent forecast by the government.

Still, growth in the fourth quarter came in at 5.4 percent, a significant rise on the same period a year before and much better than expected. "The drivers of growth are consumption and production," BPS head, Amalia Adininggar Widyasanti, told a news conference.

"One of the reasons is that people's purchasing power has remained intact," she said, praising the government's measures. The figures come days after the country's stock market suffered its worst crash in decades after index compiler MSCI threatened a downgrade over the transparency of the free-float stocks.

"There should be positive sentiment from investors because the growth is indeed above expectations, although the figure is still lower than the government's target," Bhima Yudhistira Adhinegara, executive director of the Center of Economic and Law Studies, told AFP.

Jason Tuvey of Capital Economics said: "The official data will probably continue to show growth of close to five percent. "But government and central bank officials have not been shy about their desire for faster growth in order to meet President Prabowo's target for growth of eight percent."

Indonesia is also still recovering from massive flooding and landslides in three provinces on the island of Sumatra late last year, which killed at least 1,200 people.

Moody's cuts outlook
Moody's said on Thursday it had cut Indonesia's credit rating outlook to negative from stable, citing reduced predictability in policymaking days after MSCI flagged transparency issues that triggered a market rout of more than $80 billion. The change in outlook is a fresh hit to Indonesia, a $1.4 trillion G20 economy under the stewardship of President Prabowo Subianto, with investors cooling on the country due to problems with ownership and trading transparency.

Moody's maintained its Baa2 rating but said the shift to a negative outlook from stable reflected risks to policy effectiveness and signs of weakening governance. "If sustained, the trend could erode Indonesia's long-established policy credibility, which has supported solid economic growth and macroeconomic, fiscal and financial stability," the ratings agency said.

Indonesia's finance ministry said it "appreciates" Moody's sustained rating, and that the government was undertaking "economic transformation" to revitalize growth. "The government continues to ensure that all potential risks are properly managed," the ministry said in a statement released shortly after the Moody's outlook change.

AFP