The Decline Of The Middle Class: A Significant Threat To Indonesia's Economic Growth

The Asian Development Bank (ADB) has highlighted a concerning trend regarding the decline of the middle class in Indonesia, which poses a potential threat to the long-term economic growth prospects of the nation. 

Badiul Hadi, a researcher from the Indonesia Forum for Budget Transparency (FITRA), views the reduction of the middle class as a serious warning for national economic stability. 

Historically, the middle class has played a crucial role in driving consumption, maintaining social stability, and serving as a foundation for investments in education and health—key components in achieving Indonesia's vision for 2045. "Unfortunately, the current economic reality indicates that the purchasing power of the populace is diminishing amid domestic economic pressures and global trade conflicts. The middle class is experiencing a significant contraction," Badiul stated in an interview with Kontan on Sunday, April 20. 

He elaborated that the decline in purchasing power will directly affect domestic consumption, which has been the backbone of economic growth. If left unaddressed, this situation could lead to a slowdown in the national economy. 

Badiul identified several factors contributing to the decline of the middle class, including rising transportation and energy costs, as well as fluctuations in the prices of essential goods. These pressures are particularly burdensome for vulnerable groups and the lower middle class, especially due to stagnant income levels. 

He noted that the average national wage for workers in February 2024 was Rp 3.04 million per month, an amount he considers insufficient to meet the basic living needs in many regions. 

Another concern is the increasing inequality, which, if not promptly addressed by the government, could lead to social instability. Furthermore, approximately 40.83% of Indonesia's workforce remains in the informal sector, making them vulnerable to income loss and lacking social protection. 

"The frequent layoffs in the industrial sector, coupled with the limited creation of formal job opportunities, are further exacerbating the decline in purchasing power," he added. 

Tag: Asian Development Bank Badiul Hadi Economic Growth FITRA Indonesia Forum For Budget Transparency