Indonesia's Middle-Class Problem

Indonesia's middle class is shrinking, and it's quite a concern. By 2024, only 17.13% of the population belonged to the middle class, down from 21.45% in 2019. That’s a drop from around 57 million people to almost 48 million.

Why does this matter? Well, the middle class has always played a vital role in the economy. They drive much of the household spending, which fuels economic growth.

But as their numbers and purchasing power decline, economic instability could loom. Back in 2019, they accounted for 43.39% of household consumption, but by 2024, that contribution shrank significantly to 38.28%.

What's more, this trend comes at a time when Indonesia’s GDP has been growing by about 5% each year. However, growth doesn’t mean equality.

Social inequality is growing, much like what happened in Chile, where such disparities led to unrest despite economic growth.

Experts say this decline in the middle class could risk Indonesia’s progress towards becoming a developed nation by 2045. The economic shocks from a shrinking middle class can lead to broader setbacks.

The job market isn’t helping. The pandemic and economic slowdown resulted in job losses, pushing many from the middle class into lower economic tiers with less income potential and growing financial vulnerability.

There's also a gap in financial literacy and social protection. Government support, like non-cash food aid, mainly helps the poorest, leaving the middle class to struggle with rising costs and no buffers.

In essence, Indonesia’s shrinking middle class threatens the country's economic stability and future growth.

Bridging the financial literacy gap and broadening social protections could be key steps in reversing this trend and achieving sustainable development.