Indonesia’s economy posted its strongest growth in three years, according to preliminary data from the country’s statistical agency. The expansion was primarily driven by a robust performance in the services sector, particularly in information and communications, which saw increased investment and consumer demand. Manufacturing also demonstrated resilience despite ongoing global trade tensions and geopolitical uncertainties, while construction activity began to recover, supported by public infrastructure spending.
Labor market conditions remained favorable, with the unemployment rate declining slightly to 6.2 percent in December 2025 from 6.3 percent the previous month. This stability in employment is expected to support household income growth, which, combined with a lower savings rate, could boost private consumption. Government expenditure on defense and infrastructure is also anticipated to strengthen domestic demand. Business surveys indicate rising corporate investments in digital technologies, reinforcing private sector capital formation.
However, external challenges persist, including elevated import tariffs and a strong euro, which have weighed on export competitiveness over the past year. Inflation eased to 1.7 percent in January 2026, down from 2.0 percent in December, with energy prices continuing to decline and food inflation showing a modest increase. Core inflation, excluding food and energy, stood at 2.2 percent, suggesting underlying price pressures remain broadly aligned with medium-term stability targets.
The central bank reiterated its commitment to maintaining price stability at its 2 percent target over the medium term, emphasizing a data-dependent approach to monetary policy decisions. Interest rate adjustments will continue to be assessed at each meeting based on incoming economic and financial data, inflation expectations, and the transmission dynamics of monetary policy. The bank stressed it is not pre-committed to any specific interest rate path.
Looking ahead, risks to the economic outlook remain tilted by geopolitical tensions, particularly the ongoing conflict between Russia and Ukraine, which continues to create uncertainty. On the upside, increased public investment, structural reforms, and European firms’ shift toward new technologies could support growth. New trade agreements and deeper integration within the single market may also contribute positively.
— news from \”الشرق الأوسط\”