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Strong Start to the Year, But Can the Momentum Last?

Statistics Indonesia (BPS) recorded that Indonesia's economic growth reached +5.61% YoY in 1Q26, higher than:
- 4Q25: +5.39% YoY
- 1Q25: +4.87% YoY

This figure also exceeded the consensus expectation of +5.4% YoY and represents the highest economic growth since 3Q22.

For comparison, the economic growth target in the 2026 State Budget is in the range of +5.4% YoY, so this early-year achievement can be considered quite solid.

However, behind these seemingly strong figures, there are several growth drivers that may be more temporary in nature and warrant closer scrutiny.

Consumers Spend More During Festive Season
On the expenditure side, household consumption grew +5.52% YoY, supported by the momentum of major religious holidays and increased public mobility.

The seasonality effect of Eid is quite pronounced in several expenditure categories, particularly:
- Restaurants & hotels: +7.38% YoY
- Transportation & communication: +6.91% YoY

This data shows that public consumption activity remained quite robust in the early part of the year, especially in sectors related to mobility and leisure spending.

Government Spending Becomes the Main Growth Driver
The component with the highest growth came from government consumption, which surged +21.81% YoY.

This increase was primarily driven by:
- payment of the 14th-month salary (bonus)
- increased spending on goods and services
- implementation of the Free Nutritious Meal Program (MBG)

However, it should be noted that this high growth rate was also influenced by a low-base effect, as in 1Q25 government spending actually contracted by -1.4% YoY.

In other words, part of the high growth in early 2026 stems from a relatively low comparison base from the previous year.

Investment Activity Remains Solid
On the investment side, Gross Fixed Capital Formation (GFCF) grew +5.96% YoY, in line with realization of national investment which increased around +7.2% YoY in 1Q26.

The sectors that remain the main drivers of investment are:
- manufacturing
- particularly basic metals

Investment value in the basic metals sector reached approximately Rp69.4 trillion, which is also one of the drivers of the national downstream industrialisation agenda.

Overall, investment in the downstream industrialisation sector contributed nearly 30% of total 1Q26 investment, with growth of around +8.2% YoY.

Besides manufacturing, other sectors that also recorded significant contributions include:
- services (data centres, energy-related services, healthcare services)
- mining
- housing
- industrial areas

Net Export Turns Into a Drag
Amidst strong consumption and investment, the net export component became a drag on growth.

Net exports fell around -25% YoY, with:
- exports remaining relatively flat
- while imports increased around +7.2% YoY

The increase in imports came mainly from:
- capital goods (+24% YoY)
- machinery/mechanical equipment (+22% YoY)
- electrical machinery/equipment (+17.9% YoY)

Although depressing net exports in the short term, the rise in capital goods imports can also be read as a signal that domestic investment activity is still running quite actively.

Strong Start, But Challenges Remain Ahead
Overall, Indonesia's economic growth in 1Q26 does appear quite strong. However, it is important to understand that part of this momentum was also supported by:
- expansive government spending
- low-base effect from 1Q25

Looking ahead, growth challenges are likely to become more significant in subsequent quarters.

Several factors that warrant attention include:
- diminishing low-base effects
- more limited government fiscal space
- rising energy subsidy needs amid higher global oil prices
- elevated global uncertainty
- and weakening consumer and investor confidence

In such conditions, the sustainability of economic growth will likely increasingly depend on the strength of domestic consumption, investment quality, and the effectiveness of implementing strategic government programmes.

1Q26 data shows that Indonesia's economy still has adequate growth momentum in the early part of the year. Public consumption, investment, and government spending remain the main pillars supporting domestic economic activity.

But as usual, the market doesn't just look at today's numbers, but also questions how sustainable this momentum will be going forward.