Maximilianus Nico Dimos, the research director at Pilar Mas Investment, revealed that the Indonesian economy enjoys relative stability, driven by local consumption and financial support from the government. He noted that adjustments in economic growth forecasts by global institutions are primarily due to external factors, such as rising energy prices and geopolitical conflicts.
In statements made in Jakarta, Nico confirmed that the risks associated with slowing economic growth are not profound, as local consumption and government financial support remain key factors supporting the economy, indicating that any slowdown would be moderate rather than sharp.
Event Details
Amid ongoing tensions between the United States and Iran, Nico pointed out that investors may avoid high-risk assets such as stocks, despite potential opportunities. He explained that the bond market may appear attractive, but investors are waiting for ten-year bond yields to exceed 7%.
On the other hand, Kosfiardi, a political economy analyst in the stock market, considered that the current market situation is influenced not only by local seasonal factors but also by supply shocks resulting from the conflict between the United States and Iran. He clarified that Iran's closure of the Strait of Hormuz in response to tensions with the United States and Israel has negatively impacted Indonesia, which heavily relies on fuel imports.
Background & Context
Historically, Indonesia has experienced economic fluctuations due to global events, as it heavily depends on its commodity exports. With rising oil prices, the Indonesian economy faces new challenges, especially given its reliance on imports to meet energy needs. Furthermore, any increase in oil prices by $1 per barrel could add additional burden on energy subsidies in the state budget.
Reports predict that the continued rise in oil prices will lead to an increase in the budget deficit, which may exceed the safe threshold of 3% of GDP. Experts also warn of the risk of stagflation in the second quarter of 2026, as economic growth slows while inflation rates rise due to increased transportation and energy costs.
Impact & Consequences
The decision by Bank Indonesia to halt interest rate cuts at 4.75% is a defensive move aimed at maintaining the stability of the rupiah, but the available opportunities for easing monetary policy have become limited. In the first week after the Eid al-Fitr holiday, the movement of financial markets in Indonesia showed high volatility, with the stock price index closing at 7097.057, while the rupiah stabilized within the range of 16850 - 16997 against the US dollar.
These pressures come amid rising global oil prices that have exceeded $100 per barrel, due to disruptions in the Strait of Hormuz, which is a vital artery for supplying 20% of global oil needs. This situation raises concerns among investors about the sustainability of economic growth in Indonesia.
Regional Significance
The Arab region is significantly affected by geopolitical events occurring in the Strait of Hormuz, as this area is a vital center for global oil trade. Any escalation in the conflict between the United States and Iran could lead to rising oil prices, affecting the economies of Arab countries that rely on oil exports.
In conclusion, the economic situation in Indonesia remains under observation, as its future depends on how the government responds to global challenges, in addition to the stability of energy prices. Effective strategies are required to ensure the sustainability of economic growth amid changing conditions.