The potential slowdown in global growth in 2026 is caused by at least three factors: increasing fragmentation of the global economy, escalating geopolitical tensions, and policy uncertainty among major countries. The IMF projected global economic growth to reach only 3.0–3.2 percent in 2026–2027, meaning the 2020s are expected to be the period with the weakest growth since the 1960s. In 2026, the crisis in the Strait of Hormuz is putting pressure on the global energy and logistics sectors, contributing to higher energy commodity prices. The long-term impact will depend on the duration of the conflict. Asia and developing countries are the most vulnerable due to their strategic dependence on energy supplies, fertilizers, and other critical commodities. In addition, the fragmentation of the global economy from the rivalry between the United States and China is driving a major supply chain realignment. As China’s share of the United States supply chain continues to decline, countries with strong manufacturing capacity—such as Mexico and ASEAN nations—are taking on a larger share.
On the domestic front, Indonesia is projected to sustain economic growth at around 5 percent, supported by resilient household consumption, relatively well-contained inflation, and robust investment. Nevertheless, several macroeconomic vulnerabilities call for close attention. Pressure on the increasingly constrained fiscal space, monetary policy uncertainty, and exchange rate volatility could potentially reduce Indonesia’s capacity to respond effectively to external shocks. At the same time, strengthening energy and food security, as well as diversifying supply chains, has become increasingly critical to anticipate escalating geopolitical uncertainty and global economic fragmentation. In addition, the increasing frequency of climate-related disasters are exerting mounting pressure on fiscal sustainability at both the national and subnational levels, through rising expenditures for disaster response and economic recovery.
Nevertheless, heightened global uncertainty should not serve as a justification for delaying domestic structural reforms. On the contrary, amid geopolitical turmoil, the government needs to accelerate reforms aimed at strengthening economic fundamentals, including improving the quality of public expenditure, strengthening the governance of monetary policy and financial sector, and reprioritizing government programs to focus more on productivity, competitiveness, and long-term resilience. In this way, Indonesia will not only be able to mitigate the impact of external shocks but also use them as an opportunity to strengthen its domestic economic capacity.
In an increasingly segmented global trade landscape, the integration of sustainability standards into national economic policy has become a strategic imperative for safeguarding Indonesia’s competitiveness. Coordinated efforts that align trade, CSIS Indonesia | 15 industry, and investment policies are crucial; this approach ensures that compliance with global standards is not merely a technical burden but a catalyst for economic value creation. By holistically integrating green industrial policies into its trade framework, Indonesia can strengthen its position as a reliable and resilient partner in the global ecosystem, while enhancing its competitiveness in meeting global demand that prioritizes sustainability.
The current shift in the global trade paradigm is driven by climate-trade instruments such as Border Carbon Adjustment (BCA) policies and global standards that are reshaping cost structures and compliance requirements for domestic exporters. In response, strengthening sustainability verification systems and standardization of green industries will become a critical pillar of future trade governance. Rapid and measured adaptation is needed to mitigate the risk of market disruption and maximize the potential of green investment, thereby ensuring an economic transition that is resilient and adaptable to the demands of the global market in the future.