■ Indonesia Aug-26 Retail Sales Estimate Rises 0.5% YoY: Indonesia’s retail sales remained weak in July and August despite an improvement in consumer confidence, suggesting a gap between sentiment and actual spending. Our channel checks indicate that both online and offline sales are slowing, particularly for non-essential goods. Demand for electronics and recreational products continues to decline, while financial pressure is prompting some consumers to sell or downgrade their devices. Defensive categories such as food and cigarettes remain relatively supportive, but broader household consumption weakness is likely to weigh on Indonesia’s 3Q26 GDP growth.

■ Consumer Confidence Improves, but Household Recovery Remains Fragile: Indonesia’s Consumer Confidence Index (CCI) improved modestly rising from 116.8 in July to 118.5 in August, marking the first limited increase in four months, as confidence is still below recent peak suggesting that household sentiment has not fully recovered. BI reported improvements in both Current Economic Condition Index and Consumer Expectation Index, which rose respectively to 109.4 (from 107.9 in July) and 127.6 (125.7). Nevertheless, consumer behavior remains cautious amid lingering concerns over purchasing power, employment conditions, and the uneven pace of economic recovery. We see slight improvement in household willingness to spend with perceptions of current job availability higher at 104.1, while durable-goods purchasing index increased to 106.1.

■ Indonesia’s Domestic Economy Displays Uneven Growth Quality: GDP grew 5.29% YoY in 2Q26, while investment-led regions such as Batam expanded 7.28%. However, manufacturing weakness and the target of creating over 3 million jobs in 2027 highlight that investment has yet to generate broad-based employment and household income growth.

■ External Pressures Remain as FX Reserves are Built with Government Borrowings: Indonesia’s FX reserves rose marginally from USD145.3bn in July to USD146.5bn in Aug-26, the highest level since March and slightly above SSI’s USD146.26bn forecast, but mainly supported by government external-loan withdrawals, which offset external debt repayments and BI’s continued FX intervention to stabilize the IDR. Based on DJP estimate, Aug-26 tax and services receipts were down 2% MoM.

■ Fiscal Reforms Could Improve Efficiency, but Implementation and Growth Risks Remain: Digital tax collection, better-targeted social assistance, and tighter expenditure management could strengthen fiscal efficiency. However, energy-subsidy adjustments may weaken purchasing power, particularly if oil prices stay elevated, eroding GDP growth ahead while execution risks could limit the near-term benefits.

■ Structural Investment Reflects Limited Near-Term Economic Spillovers: Investment in EVs, AI, data centers, and capital-market reforms offers longer-term potential. However, these capital-intensive projects may generate limited near-term employment, while execution risks and uncertain domestic demand could delay broader economic benefits.