Indonesia's economy grew 5.47% in the third quarter from a year earlier, speeding up from 5.29% in the second quarter as government spending and construction offset steadier household demand, Statistics Indonesia (BPS) said on Thursday.

The figure beat expectations. Economists had forecast growth to slow to 5.2%, according to RTTNews. On a quarter-on-quarter basis, gross domestic product expanded 1.59%, ahead of a 1.30% forecast. For investors in Southeast Asia's largest economy, the print points to a state-led upswing: the fastest-growing piece of demand was the government itself, not private consumers. Several forecasters had expected a slowdown, as Capital Times reported before the release.

GDP at constant prices reached 3,633.2 trillion rupiah in the quarter, and 6,741.0 trillion rupiah at current prices, BPS said, according to the state news agency Antara.

Government spending leads Indonesia's growth

Government consumption rose 8.95% from a year earlier, the quickest of the expenditure components, Xinhua reported, citing BPS. That compares with 5.66% growth in the same quarter of 2025, according to Antara.

Coordinating Economic Affairs Minister Airlangga Hartarto told reporters in Jakarta on Thursday that the government had stepped up spending in the second and third quarters, channeling money through flagship programs including the free meals program (MBG) and the Merah Putih village cooperatives (KDKMP), Antara reported.

Household consumption, which accounts for 51.97% of GDP, grew 5.04% and contributed 2.62 percentage points of growth. Investment rose 6.06%, according to Xinhua.

That mix matters for markets. Growth driven by the budget leans on fiscal room, and household spending, the biggest engine, did not accelerate with the headline. Airlangga said he was watching risks to purchasing power, in particular food and energy prices and swings in the rupiah, according to Antara.

Manufacturing, trade and construction expand

On the production side, manufacturing grew 5.87% and contributed 1.20 percentage points of the 5.47% expansion, the largest share of any sector, said M. Edy Mahmud, BPS deputy for national accounts and statistical analysis. Manufacturing makes up 19.22% of GDP.

Within factories, basic metals output grew 9.94%, helped by higher exports of copper cathode, nickel matte and aluminium, Antara reported, citing BPS. The chemicals and pharmaceuticals group grew 8.10% on higher production of fatty acid methyl ester, the palm-based biodiesel feedstock, and of fertilizer ahead of the planting season. Food and beverages rose 7.09%, supported by palm kernel oil exports and domestic biodiesel demand. Transport equipment and autos grew 6.14%.

After manufacturing, the biggest sources of growth by sector were trade at 0.94 percentage point, construction at 0.62 point and information and communication at 0.49 point, BPS data cited by Antara showed. Factory growth outpaced the headline rate, which Edy said reflected both domestic and overseas demand.

Wholesale and retail trade, including car and motorcycle repair, grew 7.14%, up from 5.46% in the third quarter of 2025, as sales of commercial and electric vehicles increased and supplies of locally made and imported goods rose.

Construction grew 6.42%, compared with 4.21% a year earlier, driven by public and private infrastructure projects, including the village cooperatives, public housing and the Sekolah Rakyat schools program. Information and communication expanded 7.13% on rising data traffic, data center use and e-commerce transactions.

What comes next for Indonesia's economy

The government is targeting 5.4% growth for 2026 as a whole, in line with the state budget assumption, Antara reported. Airlangga said the government expected momentum to hold in the fourth quarter. He said the result showed the government's policies were on the right track, with strong fundamentals and rising investment, while acknowledging that challenges remained to be resolved.

He pointed to several early indicators. Indonesia's manufacturing purchasing managers' index rose to 54.0 in October from 52.4 in September, its highest level since March 2026. He also cited an industry confidence index of 53.77 compiled by the Ministry of Industry, a 9.21% rise in electricity sales and a consumer confidence index of 118.1, which remains in optimistic territory.

BPS also released labor data on Thursday. The open unemployment rate in August 2026 fell 0.09 percentage point from a year earlier, according to Antara.

Hitting the 5.4% full-year target will depend on whether that state-led pace carries into the October-December quarter.