Only 32% of Indonesian Businesses Plan Capex as High Rates, Weak Rupiah and Wildfires Cloud Outlook

JAKARTA, Investortrust.id — Corporate investment intentions across Southeast Asia’s largest economy have deteriorated for a third consecutive quarter, as high borrowing costs, persistent currency depreciation, and recurring environmental hazards prompt business operators to stall capital expenditure.

According to the Kadin Business Pulse survey for the third quarter of 2026, released Thursday by the Kadin Indonesia Institute (KII), just 32.4% of surveyed firms plan to execute capital investments over the coming six months. The figure reflects a cumulative decline of 14.7 percentage points from 47.1% in late 2025, falling steadily from 39.0% in the first quarter and 34.4% in the second quarter.

While companies reporting no plans to invest eased slightly to 40.0% from 43.5% in the previous quarter, neutral responses climbed to 27.6% from 22.1%. The survey, which polled 330 Kadin members across 28 provinces between Sept. 14 and Sept. 30, reveals that receding business pessimism has merely translated into a cautious holding pattern rather than renewed expansion.

"Business pressures in the third quarter began to ease, but enterprises have largely transitioned into a 'wait-and-see' posture rather than outright optimism," said Mulya Amri, Executive Director of the Kadin Indonesia Institute, during a press conference at Menara Kadin in Jakarta on Thursday.

Macro Headwinds and MSME Credit Disparity

The research arm of the business chamber attributed the subdued capex sentiment to elevated capital costs and currency volatility. The central bank lifted the benchmark BI-Rate by 100 basis points to 5.75% at the end of the second quarter, maintaining it throughout the third quarter. Concurrently, a 7.74% depreciation of the Indonesian rupiah through late September raised the landed acquisition cost of imported capital equipment.

This caution on the ground contrasts sharply with headline national investment figures. Aggregate direct investment climbed 7.1% year-on-year to Rp 511.78 trillion ($32.2 billion) in the second quarter of 2026, bolstered heavily by large-scale downstream natural resource processing.

KII noted that top-line national figures are masked by capital-intensive megaprojects, while investment appetite across the broader small-business base is drying up.

A stark division in investment appetite emerges across corporate tiers: large enterprises lead the expansion push with 42.4% planning capital outlays over the next six months—the only cohort where positive investment intent exceeds the 39.4% that do not plan to invest. In contrast, 36.5% of small and medium enterprises intend to deploy capex, though a larger 46.1% share maintains no investment plans. Micro enterprises recorded the steepest pullback, where capital expenditure intentions dropped from 36.1% to 28.0% as neutral responses climbed to 35.7%.

The divergence aligns with persistent imbalances in credit allocation. Commercial bank credit to large corporations jumped 22.18% year-on-year in August 2026, whereas lending to micro, small, and medium enterprises (MSMEs) managed an increase of just 2.38%.

Climate Shocks and Haze Disrupt Cash Flow

Beyond macroeconomic levers, environmental hazards—most notably forest and land fires (karhutla)—are actively disrupting commercial activity. Nearly 58% of respondents reported operational impacts from natural disasters or environmental disruptions over the past 12 months, with climate-linked disruptions (wildfires, extreme weather, drought, and floods) affecting 39.1% of enterprises.

Wildfires alone accounted for 13.0% of reported business disruptions. Fakhrul Fulvian, Insights Director at KII, noted that the property and real estate sector has taken the hardest hit to investor sentiment.

Disasters are predominantly squeezing operational margins rather than destroying physical property. Respondents cited increased operational expenditures (13.5%), suppressed sales demand (11.8%), and freight and logistics bottlenecks (10.8%) as primary pain points. Despite high vulnerability, 44.5% of businesses surveyed indicated they remain unprepared to manage climate shocks, with the construction sector showing the highest vulnerability at 58.2% unprepared.

To safeguard operating resilience, 22.4% of surveyed businesses requested rapid early warning risk systems, while 18.6% called for physical protection of logistics corridors.

Balancing Wage Hikes With Productivity

The investment slowdown unfolds alongside heated domestic deliberations regarding labor costs. Trade unions, led by the Confederation of Indonesian Trade Unions (KSPI) and the Labor Party, have formally proposed a 7.5% to 9.5% hike in the 2027 provincial minimum wage (UMP), factoring in 3.20% inflation, 5.43% average gross domestic product growth, and an alpha index multiplier of 0.9.

Weighing in on the proposal, Kadin Indonesia Chairman Anindya Bakrie emphasized that wage adjustments must be benchmarked against labor output to avoid hurting long-term capital inflows.

"I am not saying that workers and the minimum wage are unimportant; rather, any wage increase discussed must be accompanied by productivity gains so we remain competitive," Anindya said at Menara Kadin on Thursday. "Business operators will continue to invest, but investment inherently carries risk."

Anindya pointed to the adoption of artificial intelligence as an operational imperative for domestic enterprises seeking efficiency. "With artificial intelligence, the operating philosophy for business leaders everywhere remains: how to do more with less," he added.

Formal 2027 minimum wage figures are slated for government determination by Nov. 1, 2026.