JAKARTA, Indonesia — Indonesia’s economy expanded faster than economists expected in the second quarter, offering President Prabowo Subianto’s government a measure of reassurance even as growth lost momentum and concerns about economic management unsettled investors.

Gross domestic product rose 5.29 percent from a year earlier in the April-to-June period, Statistics Indonesia reported on Wednesday. That exceeded the 5.1 percent median estimate in a Reuters survey but was down from 5.61 percent in the first quarter. The economy grew 3.73 percent from the previous quarter, while first-half growth reached 5.45 percent.

The result underscored Indonesia’s resilience amid higher energy costs, volatile global markets and capital outflows. But it also exposed the economy’s continued reliance on government support at a time when fiscal pressures and doubts about Bank Indonesia’s independence have become increasingly important to investors.

Public Spending Provides the Lift

Government consumption increased 15.97 percent from a year earlier, the fastest-growing major expenditure category, supported by civil-service payments and stimulus programs. That was nevertheless slower than its 21.81 percent surge in the first quarter.

Household consumption — responsible for roughly half of Indonesia’s economic output — grew 5.06 percent, easing from 5.52 percent. Travel, hotels and transportation associated with school holidays helped sustain spending after the earlier boost from the Eid season faded.

Investment offered a brighter signal. Gross fixed-capital formation advanced 6.87 percent, its strongest performance in a year, aided by vehicle purchases, infrastructure work and construction linked to government-backed cooperative projects. Construction recorded its fastest expansion in about two years. Mining, by contrast, contracted as production quotas restrained activity.

Radhika Rao, an economist at DBS Bank, said stronger public expenditure had been a central contributor, while stimulus and the limited transmission of higher global energy prices supported consumption.

Imports once again grew faster than exports, however, reducing the contribution from net trade and highlighting Indonesia’s exposure to weaker external demand and rising energy-import costs.

Officials Emphasize Resilience; Economists See Vulnerabilities

Finance Minister Purbaya Yudhi Sadewa called the 5.29 percent result insufficiently strong and promised additional measures to accelerate activity. The government has delayed some new taxes, prepared incentives for electric vehicles and extended the placement of 200 trillion rupiah — about $11.2 billion — in state-owned banks until July 2027 to encourage lending.

Coordinating Economic Affairs Minister Airlangga Hartarto presented the figures more positively, describing growth above 5 percent despite geopolitical and economic uncertainty as evidence of resilience. He said domestic travel and the government’s free nutritious meals program had supported demand, and promised faster capital spending and further development of industrial zones.

Domestic analysts have been more guarded. Economists cited by The Jakarta Post said solid headline figures could mask pressure on household welfare, subdued exports and uneven private-sector confidence. International institutions have voiced similar concerns. The World Bank forecast 5 percent growth for Indonesia in 2026, warning that expensive fuel subsidies, currency depreciation and debt-servicing costs were narrowing the government’s room to sustain stimulus.

A Central-Bank Transition Complicates the Outlook

The GDP release came days after Perry Warjiyo unexpectedly resigned as governor of Bank Indonesia, two years before his term was due to end. His departure revived questions about whether the central bank could resist political pressure to prioritize rapid growth over currency and price stability.

Those concerns have sharpened after Bank Indonesia raised interest rates by a combined percentage point in May and June to defend the rupiah. Higher borrowing costs may weaken investment and consumption in coming quarters, even as the government presses banks to expand credit.

Acting governor Destry Damayanti has emerged as the leading candidate to succeed Mr. Warjiyo, according to Reuters. Her experience and perceived policy continuity may reassure markets, but investors are expected to scrutinize the parliamentary confirmation process, scheduled to begin after lawmakers return on Aug. 14.

The Distance to 8 Percent

The latest data leave Indonesia growing at a pace that many economies would welcome, but well below Mr. Prabowo’s ambition of reaching 8 percent annual expansion by 2029.

One figure in the supplied account requires correction: Indonesia’s official 2026 budget assumption is 5.4 percent, not 6.3 percent. Mr. Purbaya has said he hopes growth can reach as much as 6 percent this year. Achieving even that higher aspiration would require a significant acceleration in the second half.

For now, the second-quarter report offers two competing readings: an economy that continues to outperform forecasts, and one whose strength depends increasingly on public spending while households, trade and financial markets face mounting pressure. Which interpretation prevails may depend less on another stimulus package than on whether the government can restore policy credibility, preserve central-bank independence and convert public investment into durable private-sector growth.

Source: Reuters