International News 02 January 2026
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Indonesia’s Banking Sector Faces 2025 Pressures, Eyes Cautious Recovery in 2026
Indonesia’s banking industry faced a challenging environment in 2025, marked by slowing credit growth and declining profitability among major banks. Bank Indonesia recorded credit growth of only 7.74% YoY as of November 2025, down sharply from above 10% in late 2024 and early 2025, and near the weakest level in three years. Profitability also came under pressure: among KBMI IV banks, only BCA posted profit growth (+4.35% YoY), while BRI, BNI, and Bank Mandiri reported profit declines of 6–9%. Weak domestic demand, subdued purchasing power, and cautious credit expansion weighed heavily on performance, despite liquidity conditions remaining relatively ample. Looking ahead to 2026, banks remain cautiously optimistic but divided in outlook. Large banks emphasize prudence, noting that ample liquidity and potentially lower funding costs will have limited impact without stronger credit demand. Government spending and strategic programs—particularly in housing—are seen as key catalysts, with BTN targeting 10–12% credit growth driven by subsidized mortgage schemes. In contrast, digital banks are more aggressive, aiming for double-digit growth by focusing on retail, consumer, and MSME segments, even as MSME credit contracted in 2025. Overall, the banking sector’s recovery in 2026 will hinge on fiscal stimulus effectiveness, domestic demand improvement, and sustained macroeconomic stability.
Indonesia’s 2025 Budget Deficit to Exceed Outlook but Remain Within Legal Limit
Indonesia’s Finance Minister Purbaya Yudhi Sadewa said the 2025 state budget deficit is expected to surpass the official outlook of 2.78% of GDP, while still staying below the statutory ceiling of 3% of GDP as mandated by Law No. 17/2003 on State Finance. Speaking at a press conference on December 31, 2025, he stressed that the government remains in continuous coordination with parliament and that the final deficit figure will be announced after the year-end fiscal closing. The wider deficit was mainly caused by tax revenue realization that fell short of target toward the end of the year. Data from the Ministry of Finance show that by November 2025, the budget deficit had reached 2.35% of GDP, equivalent to Rp560.3 trillion, widening from 2.02% of GDP in October. Despite the slippage, the government maintains that fiscal discipline has been upheld and the deficit remains under control.
Wall Street Sees Continued Rally in 2026, Powered by AI—but Bubble Risks Loom
US equities are widely expected to stay on a positive trajectory in 2026, with a Bloomberg survey of 21 Wall Street analysts showing unanimous forecasts for a fourth straight annual gain—something last seen in 2003–2007. The average S&P 500 target for end-2026 stands around 7,500–7,800, with Oppenheimer the most bullish at 8,100 and Bank of America the most conservative at 7,100. Goldman Sachs projects the index at 7,600, supported by a 12% rise in earnings per share to about US$305. Meanwhile, the tech-heavy Nasdaq 100 is expected to climb from roughly 25,400 to a range of 28,000–35,000, reflecting sustained optimism toward large-cap technology stocks. The main driver behind this outlook is massive investment in artificial intelligence. Wall Street estimates hyperscaler capital expenditure will reach US$527–602 billion in 2026, with roughly three-quarters allocated to AI infrastructure. Fiscal support, including US tax cuts and incentives for AI investment, further strengthens the bullish case. However, analysts warn of rising risks: AI-related revenues remain small relative to spending, valuations for some mega-cap stocks are stretched, and surveys show fears of an AI-driven tech correction are at record highs. As 2026 approaches, markets are expected to become more selective, favoring companies with clear AI monetization paths and sustainable profitability rather than those merely scaling infrastructure.