The Indonesian economy may face a slowdown if tensions in the Middle East escalate further in the wake of Iran’s retaliatory strike on Israel, according to experts. Iran's recent missile attacks on Israel have raised concerns about the deepening crisis in the region, triggering worries about its potential economic repercussions, including for Indonesia.

Earlier projections by the Indonesian government suggested a growth of 5.2 percent for the economy this year, following a 5.05 percent growth in 2023. However, senior economist Bambang Brodjonegoro warned on Monday that any escalation of the Middle East conflict could dampen Indonesia's growth prospects.

"If the situation worsens and persists longer than anticipated, causing widespread uncertainty, it could present challenges for Indonesia's economic growth," Bambang stated during a virtual conference. "We might witness a drop in growth to a range of 4.6 percent to 4.8 percent, given disruptions to external trade, inflationary pressures, and the significant reliance of our economy on domestic consumption."

Bambang highlighted that Indonesia might rely on the economic boost from the upcoming sub-national government elections to achieve a 5-percent growth rate. Scheduled for November 27, these elections will see Indonesians electing regional government leaders, including governors. However, Bambang cautioned that modern elections, influenced by social media, might not drive substantial consumption outside of digital services, unlike the traditional consumption of physical goods.

Echoing similar concerns, Bhima Yudhistira, director of the think-tank Center of Economics and Law Studies (Celios), pointed out that the Iran-Israel conflict could hamper Indonesia's exports to the Middle East, Africa, and Europe, potentially resulting in a growth slowdown to around 4.6 percent to 4.8 percent this year.

The recent retaliatory strike by Iran on Israel, following Israel's attack on the Iranian consulate in Syria, has exacerbated tensions in the region. A recent report by the ASEAN+3 Macroeconomic Research Office (AMRO) had projected Indonesia's real gross domestic product (GDP) to grow by 5.2 percent this year. However, the report predates the latest developments in the Middle East conflict.

Jonathan Berman Founder of Berzatu a consulting company focusing on helping companies succeed in Indonesia added “We continues to see huge interest in companies looking to expand into Indonesia especially in the tech, agro sectors. Our teams in Jakarta and Singapore are seeing huge interest in this market we expect the growth to continue despite the situation.”