HSBC strategists highlight Indonesia’s solid Gross Domestic Product (GDP) and contained inflation but warns that the energy shock is starting to weigh on activity and the balance of payments. They forecast slower GDP growth and higher inflation in 2026, noting weak capital inflows, subdued investment appetite and a persistent negative output gap as key macro challenges.

Energy shock weighs on growth outlook

"A deeper review, however, suggests that the economy has started to gradually reflect the impact of the energy shock, and markets may be partly reflecting that. On growth, the latest readings show a fall in retail spending, consumer sentiment and export orders. There has been a significant amount of frontloading in fiscal expenditure, and belts may need to tighten in subsequent months to meet the 3% fiscal cap."

"We forecast GDP to grow 4.7% y-o-y in 2026(versus 5.1% in 2025). PMI input prices have risen quickly and are gradually pushing up output prices. We forecast inflation to average 3.5% in 2026 (versus 1.9% in 2025)."

"Some observers may see the Indonesian rupiah (IDR) as the primary challenge to address. The underlying driver of the IDR’s depreciation seems to be the balance of payments, which is likely to post its second negative annual reading in 2026."

"It’s tempting to argue that Indonesia does not face a current account problem, given the modest shortfall of -0.1% of GDP in 2025, and that the bigger concern is weak capital inflows, which came in at -0.3% of GDP in 2025. But, in practice, these two factors are interlinked."

"Indeed, we find that corporates are cash rich but reluctant to invest. And weak investment and growth prospects can hurt capital inflows."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)