Akmalal Hamdhi, Jakarta – Indonesia's middle class is shrinking, raising concerns about the sustainability of Southeast Asia's largest economy, an analyst said Monday.

Eko Listiyanto, director of big data development at the Institute for Development of Economics and Finance (Indef), warned that the government has largely overlooked the middle-income group despite its crucial role in driving household consumption.

"The purchasing power of the middle class needs to be supported with incentives such as electricity discounts, public transportation subsidies, or lighter tax burdens," Eko told Beritasatu.com on Monday. "If their purchasing power improves, household consumption could accelerate in line with the economy's growth target of around 5 percent."

Household spending is the backbone of Indonesia's economy, accounting for 54.25 percent of gross domestic product in the second quarter of 2025, according to the Central Statistics Agency (BPS). Consumption contributed 2.64 percentage points of the country's 5.12 percent growth during the period.

But the number of Indonesians in the middle class has declined over the past five years, falling from 57.33 million in 2019 to 47.85 million in 2024, BPS data show. Consumption growth has also slowed to below 5 percent, suggesting weaker demand among households that typically provide stable spending.

Eko cautioned that neglecting this group could push more families into poverty, further weakening domestic demand. "Without incentives for the middle class, their numbers may continue to decline, and so will their contribution to GDP," he said.

He also urged that social assistance programs for low-income households be designed to help recipients achieve economic independence. "We need to help poor households graduate from welfare by improving skills, access to capital, and market opportunities for jobs or entrepreneurship," Eko said.

Indonesia's automotive industry illustrates the pressures facing the middle class. The sector is bracing for a downward revision to its 2025 car sales target after weak demand and lackluster transactions at the nation's biggest auto show signaled deeper troubles ahead. The Indonesian Automotive Industry Association, or Gaikindo, had initially set a goal of 900,000 units for the year, but sales through June dropped 8.6 percent to 374,740 units from 410,020 a year earlier.

Gaikindo Chairman Yohannes Nangoi said the slowdown reflects macroeconomic pressures that are eroding middle-class purchasing power, particularly for non-essential goods like cars. As one of the most visible indicators of household confidence, car sales often mirror the health of Indonesia's middle class. Even the Gaikindo Indonesia International Auto Show (GIIAS), typically an indicator for industry sentiment, reported fewer transactions despite drawing larger crowds compared with 2024.

"The economic situation is somewhat challenging, and overall vehicle sales have declined through the first half of the year," Nangoi said, noting that consumer caution has been weighing heavily on the sector. The downturn underscores the broader strain on domestic consumption, which accounts for more than half of the economy and is showing signs of losing momentum this year.

Source: https://jakartaglobe.id/business/indonesias-shrinking-middle-class-threatens-growth-consumptio