Highlights

• Indonesia's macro momentum softened at the start of 2H26: Manufacturing PMI contracted sharply to 46.9, the lowest level in one year, while Indonesia unexpectedly recorded its first monthly trade deficit since April 2020, signaling weakening external demand and moderating domestic activity.

 

• Inflation accelerated towards the upper band of BI's tolerance: June headline inflation rose to 3.34% YoY, slightly below SSI's forecast of 3.40%, suggesting that while price pressures continue to broaden, inflation remains broadly consistent with Bank Indonesia's policy objective.

 

• Government policies became more growth-supportive to offset tighter monetary conditions: Lower industrial LNG prices, preparations for B50 implementation, Tapera mortgage reform, SOE restructuring under Danantara, and continued investment promotion demonstrate an active industrial policy response to slowing growth.

 

• MBG cut has a net-stabilizing impact on Indonesia's short-term GDP growth: On 22-Jun-26, the National Nutrition Agency (BGN) announced further dynamic reductions by implementing immediate budget-saving suspension of meals during school holiday periods (from 22 June to 13 July). There are also confirmed plans to reduce distribution down to four days a week to trim another IDR 40-50tn off the working budget.This reduction has a mixed, net-stabilizing impact on Indonesia's short-term GDP growth, balancing a mild dip in immediate consumption with a substantial boost in macroeconomic stability.

 

• Financial markets stabilized despite persistent foreign outflows: The IDR continued to knock on the IDR18,000/USD psychological level despite BI's aggressive monetary tightening, while JCI recovered part of its earlier losses as domestic investors selectively accumulated banking and industrial stocks.
• External factors remain as macro drivers: Lower oil prices provide welcome relief to inflation, but expectations of another Federal Reserve rate hike and weakening global manufacturing continue to challenge Indonesia's growth outlook during 3Q26.