Indonesia economic growth driven by government spending and rising money supply

Indonesia's economic growth in the second quarter of 2026 reached 5.29% year-on-year, according to Statistics Indonesia (BPS). However, an analysis by the Institute for Economic and Social Research at the University of Indonesia (LPEM FEB UI) suggests this growth is heavily driven by government spending rather than broad-based economic strength.

LPEM FEB UI noted that government consumption grew by 15.97% year-on-year, a level significantly higher than the historical average of 3.40% seen between 2010 and 2025. If government spending had followed historical averages, the GDP growth would have been approximately 4.45%. Key drivers of this spending include the Free Nutritious Meal (MBG) program and the Red and White Village Cooperative (KDMP).

Separately, Bank Indonesia reported that the broad money supply (M2) grew by 8.3% year-on-year in July 2026, reaching Rp10,371.1 trillion. This growth was supported by a 10.0% increase in narrow money (M1) and a 5.6% increase in quasi money. The expansion was primarily driven by credit distribution, which grew by 13.0% year-on-year, and net claims on the central government, which rose by 4.6%.