by Martin Armstrong, Armstrong Economics:
Indonesia is another economy that deserves far more attention than it receives in the West. The world’s fourth-most-populous nation expanded 5.29% year-over-year during the second quarter of 2026, beating economists’ expectations of 5.10%. That followed an even stronger 5.61% expansion during the first quarter. For the entire first half of 2026, Indonesia grew 5.45%. While governments throughout the developed world struggle to produce 1% or 2% growth without enormous deficit spending, another major Asian economy is steadily expanding above 5%.
TRUTH LIVES on at https://sgtreport.tv/
Indonesia is particularly interesting because this is not simply another export story. Household consumption, which represents more than half of the economy, increased 5.06% during the second quarter. Construction expanded 6.68%, accommodation and food services grew more than 10%, and manufacturing increased 4.52%. Indonesia has nearly 290 million people, and that enormous internal market provides something smaller export economies simply cannot replicate. As incomes rise, Indonesia increasingly has the ability to generate growth from within.
This is the same transformation I have discussed when looking at India and Vietnam. People can see an economy change in real time when growth begins producing physical results. Roads appear. Airports expand. Industrial parks are constructed. Factories open. Apartment buildings rise. People who never owned automobiles become consumers. Families that previously lived at subsistence levels begin spending money on travel, restaurants, electronics, education, housing, and financial services. That transformation becomes self-reinforcing because an emerging middle class creates entirely new industries around itself.
Indonesia also possesses something Europe desperately lacks: resources. It is the world’s largest producer of nickel, a major producer of coal, palm oil, copper, tin and other commodities, and the government has increasingly refused to remain merely an exporter of raw materials. Indonesia banned exports of unprocessed nickel ore and forced companies seeking access to its resources to invest in domestic processing. That decision helped produce an enormous nickel refining and smelting industry.
This is economic nationalism in its practical form. Why dig something out of the ground, ship it overseas, allow someone else to manufacture the valuable product, and then import that product back at a massive markup? Indonesia wants the factories, processing plants, employment, technology, and capital investment to remain inside Indonesia. The West may complain about these policies when they interfere with its own corporations, but Indonesia is acting in its own national interest.
Investment has remained a major component of this expansion. Gross fixed capital formation increased 6.87% during the second quarter as spending on buildings, machinery, vehicles, and productive equipment continued rising. During the first quarter, investment had already expanded 5.96%. This matters because consumption can produce temporary GDP growth, but productive investment creates the capacity for future growth.
Trade is expanding as well. Indonesian exports reached $140.81 billion during the first six months of 2026, an increase of 4.13% from the previous year. Non-oil and gas exports climbed to $134.58 billion. Imports increased much faster, reaching $137.24 billion, but Indonesia still maintained a $3.58 billion trade surplus during the first half. The surge in imports is not necessarily evidence of weakness when an expanding economy is importing machinery, industrial inputs, and capital goods required for production.
Read More @ ArmstrongEconomics.com
