IBC Highlights K-Shaped Recovery as Businesses Face Triple Squeeze

The Indonesian Business Council (IBC) has warned that Indonesia’s strong economic growth is being transmitted unevenly across the economy, with resilient macro indicators masking growing pressure in parts of the real sector. In its latest IBC Navigator Vol. 19/2026, titled Indonesia’s K-Shaped Economy and the Triple Squeeze on Firms, IBC said Indonesia is showing characteristics of a K-shaped economy, where some sectors continue to benefit from investment, downstream industrialization, and macroeconomic stability, while others face rising operating costs, weaker working capital support, and softer demand visibility.

Indonesia’s economy grew 5.61 percent year-on-year in the first quarter of 2026, supported by 21.81 percent growth in government consumption and 5.52 percent growth in household consumption. However, IBC noted that several indicators point to a widening gap between macroeconomic resilience and firm-level operating conditions. The PMI’ Index fell to 49.1 in April 2026, signaling contraction in factory activity, while undisbursed credit facilities remained high at IDR 2,527 trillion. IBC said this indicates that liquidity is not the only issue. Credit facilities remain available, but business confidence, demand visibility, and working capital appetite have not strengthened evenly across firms.

Principal Policy & Program IBC Karlina Aucia Agusta said Indonesia’s resilience must now be converted into broader and more durable economic benefits. “Indonesia has shown that its economy can remain resilient amid uncertainty. The next task is to ensure that this resilience is translated more evenly into business confidence, productive investment, quality jobs, and household demand that is broader and more durable,” Karlina said.

IBC also warned that many firms are facing a triple squeeze from rising input costs, uneven financing, and weakening demand visibility. Imports of primary industrial raw materials rose 31.8 percent year-on-year in the first quarter of 2026, while investment credit grew 20.85 percent, far outpacing working capital credit growth of 4.38 percent.

For companies, the triple squeeze is increasingly showing up in daily operating decisions. Rising input and energy costs are compressing margins, while limited working capital growth reduces flexibility to manage inventories, production, and supplier payments. At the same time, softer and more selective consumer demand makes it harder for firms to pass higher costs on to the market. As a result, many businesses are shifting from expansion to cash preservation, delaying investment, slowing hiring, and taking a more cautious approach to production.

If left unaddressed, IBC said, this pattern could deepen the divide between sectors benefiting from growth and those facing pressure in daily operations. IBC urged policymakers to narrow the transmission gap by strengthening productive financing, protecting household purchasing power, supporting labor-intensive sectors, and improving policy certainty for businesses.