Indonesian growth unexpectedly jumps 5.12%, defying weak lending

Indonesia’s second-quarter growth unexpectedly accelerated to the fastest pace in two years, with exports and investment helping an economy that’s beset by weak loan growth and mass job losses in manufacturing. 

Gross domestic product in the three months through June rose 5.12% from a year ago, the nation’s statistics office announced on Tuesday. That beat expectations of a slowdown to 4.8% growth, according to the median estimate in a Bloomberg survey. The rupiah was little changed at 16,384 to the dollar, while stocks increased gains to 1% after the data.

Economists were surprised. Outside of the pandemic, the discrepancy between forecast and actual data was the biggest since the first quarter of 2014, according to data compiled by Bloomberg. While the economy may have benefited from interest rate cuts, government stimulus, and the Eid al-Fitr holiday season, analysts are divided over the outlook.

“I doubt if the investment growth will be sustained in the second half of the year,” said Ahmad Mikail Zaini, chief economist at PT Sucor Sekuritas in Jakarta, citing slowing loan growth and a contraction in foreign direct investment in June.

In contrast, Bank Danamon Indonesia economist Hosianna Evalita Situmorang said third-quarter figures “could continue this improvement,” thanks to government stimulus; spending on free school meals and other projects; supportive monetary policy; and resilient agricultural output. 

Gross fixed capital formation gained 6.99% in the second quarter, the fastest pace in four years, due to infrastructure development and machinery spending, BPS said.

Still, there are also questions over the reliability of the statistics.  

“We don’t have much faith in the data,” Capital Economics said in a report after the announcement. “We’ve long held concerns about the reliability of Indonesia’s GDP data. Before the pandemic, Indonesia went for nearly six years in which official GDP growth barely moved from 5% y/y. And in recent years GDP growth has, again, started to hover around the same rate.”

Private consumption, which accounts for over half of the country’s GDP, rose 4.97%. 

“This remains below the 5.0% trend in the decade before the COVID-19 pandemic—indicating that consumers remain cautious,” Tamara Mast Henderson wrote in a report for Bloomberg Economics, predicting another quarter-point cut in interest rates in the current quarter.

Indeed, there have been massive numbers of jobs lost in the textile and other industries as Chinese exporters have dumped goods in the nation of 280 million people. The U.S. imposition of tough tariffs may have added to pressure on Beijing to find new markets.

Southeast Asia’s largest economy expanded 4.04% on a quarterly basis, more than the 3.69% expansion forecast by economists. Exports increased 10.67%, helped by front-loaded shipments ahead of looming U.S. tariffs, which have been reduced to 19% from a threatened 32% for Indonesia.

Still, external risks persist due to the worsening trade war and the slower global economy, which could dampen the momentum of domestic demand and trade going forward. The higher tariffs on exports to the U.S. go into effect on Aug. 7.

Government spending dropped 0.33% in the second quarter from a year earlier, amid efforts by President Prabowo Subianto to repurpose some state spending to favored programs, including free school lunches. 

Prabowo is set to unveil the government’s spending plans for 2026 in his first budget speech on Aug. 15, along with the economic growth goal for the year. The government has already lowered the 2025 GDP growth outlook to 4.7%-5%, from an initial 5.2% forecast, and has said more fiscal incentives are being prepared to boost purchasing power through the end of the year.

More monetary support is also likely. Since September, Bank Indonesia has lowered its key interest rate by 100 basis points and pledged to continue cutting further to support economic growth and boost bank lending, which dipped to a two-year low in June.

“The stronger-than-expected print in Indonesia’s second-quarter growth—bolstered by investment and exports—is unlikely to last,” Bloomberg’s Henderson wrote. “The impact of higher U.S. tariffs has yet to land. When it does, growth will suffer.”

This story was originally featured on Fortune.com