Nearly 10 million Indonesians fall out of middle class since 2019

(Originally posted on : Invezz )

Indonesia’s middle class, once a symbol of the nation’s economic resilience, has suffered a severe contraction since 2019.

According to the Central Bureau of Statistics, nearly 10 million people have slipped out of this income group, reducing their numbers from 57.3 million in 2019 to 47.8 million in 2023.

At the same time, the aspiring middle class, a demographic one step below, grew from 128.85 million to 137.5 million.

Together, these groups represent approximately two-thirds of Indonesia’s population of 277 million.

This shift reveals deep vulnerabilities in the country’s socio-economic fabric, exacerbated by the pandemic, structural economic challenges, and a lack of comprehensive social safety nets.

How Covid-19 exposed economic vulnerabilities

The Covid-19 pandemic had devastating effects on Indonesia’s middle class.

Prolonged lockdowns, event cancellations, and restrictions disrupted livelihoods, particularly for entrepreneurs and small business owners.

The decline in disposable incomes saw many families falling below the middle-class threshold, defined as those spending between two million rupiahs ($127) and 9.9 million rupiahs ($638) monthly.

A significant issue was the limited access to government support for this group.

Social assistance mechanisms, such as cash transfers and energy subsidies, were plagued by inclusion errors, often bypassing middle-class households.

Those reliant on informal employment or small businesses faced additional hurdles, as most benefits were distributed through formal employment channels.

Structural economic weaknesses contribute to middle-class decline

Beyond the pandemic, broader economic challenges have further strained Indonesia’s middle class.

The country’s reliance on trade has left it vulnerable to global economic slowdowns.

Major trading partners like the US, China, and Japan have reported contractions, impacting demand for Indonesian exports.

Weakening commodity prices and reduced trade volumes have added pressure on incomes.

Deindustrialisation has reshaped Indonesia’s labour market.

Manufacturing, which historically absorbed a significant share of the workforce, has lost ground to the services sector.

Much of this sector remains informal, offering lower wages and minimal job security.

These changes have resulted in stagnant income growth and reduced upward mobility, making it harder for families to re-enter the middle class.

Government initiatives and promises for recovery

The inauguration of President Prabowo Subianto has raised hopes for economic recovery.

During his campaign, Prabowo pledged ambitious goals, including achieving GDP growth of 8% and eradicating poverty.

Initiatives such as a nationwide free school lunch programme aim to tackle childhood stunting and improve educational outcomes, which could have long-term benefits for economic mobility.

Critics argue that addressing structural issues, such as weak productivity and labour standards, is equally critical.

Indonesia lags behind competitors like Vietnam and Bangladesh in these areas, limiting its ability to attract higher-value industries.

Economists have emphasised the need for investment in research, development, and innovation to boost productivity and create sustainable opportunities for the middle class.

Challenges facing Indonesia’s economic recovery

While Indonesia’s economy has grown steadily at about 5% annually since the pandemic, this rate falls short of what is needed to rebuild the middle class.

Persistent inflation, rising interest rates, and a sluggish global economy have constrained domestic consumption.

Families that once belonged to the middle class now spend cautiously, focusing on essentials rather than discretionary items, slowing economic recovery.

The absence of robust social safety nets continues to be a major impediment.

Without targeted interventions, middle-class families risk falling into a cycle of poverty, further widening income disparities.

Economists recommend reforms to strengthen formal employment, improve social assistance programmes, and promote equitable access to opportunities.

A long road to rebuilding the middle class

The contraction of Indonesia’s middle class is a stark reminder of the fragility of economic progress.

The pandemic exposed gaps in the country’s social and economic systems, and addressing these requires sustained effort and policy reforms.

With targeted measures, including improved labour regulations, investments in productivity, and a focus on social mobility, there is hope for rebuilding the middle class.

However, progress will depend on the government’s ability to balance short-term relief with long-term structural changes.

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