Middle Class Under Strain Amid Global Uncertainty, Manufacturing Seen as Key to Safeguarding Purchasing Power

Global uncertainty in the economy has risen sharply, now perceived to be three times the normal level over the past two decades, potentially eroding consumer confidence and squeezing Indonesia’s middle class. Enrico Tanuwijaya, ASEAN economist at UOB, said the global uncertainty index is currently at levels three times above normal, noting that the uncertainty diminishes willingness to spend even as the middle class is pressed by various incentives yet expected to stand on its own.

He said that the weakness in consumption is primarily from the mid-to-high-income group, which has traditionally driven domestic demand. “The demand-destroying factor is the mid-high segment. Car sales fall, and confidence declines. Labour-intensive sectors are being eroded,” he added.

Enrico regards manufacturing as the backbone of Indonesia’s economy, crucial for absorbing labour and sustaining consumption. During the commodity boom around 2012, the textile, footwear, and garment industries grew rapidly. Over the last decade, however, the contribution of these labour-intensive sectors has continued to decline. Conversely, the food and beverage (F&B) industry has increased its share of manufacturing from about 18% to 26.5%, though this sector is less labour-absorbing as it relies more on automation. “If we shift demand away from manufacturing, that is the key,” he said. “The problem now lies on the demand side.”

Data from the Indonesian Central Agency for Statistics (BPS) show the manufacturing sector remains the largest contributor to Indonesia’s GDP at around 18%-19%, but its growth has been moderating in recent years. Still, he is optimistic that Indonesia can become a mature and sustainable economy by 2035 if it can strengthen manufacturing, micro, small and medium-sized enterprises (MSMEs), and domestic purchasing power. “We still have a long runway of about ten years. Resilience must be built from now,” he said.

With a combination of fiscal policies, industrial protection, and financial literacy among the public, Indonesia is expected to weather global uncertainty while maintaining growth around 5% or higher. The government acknowledges pressure on the middle class. Secretary of the Coordinating Ministry for Economic Affairs, Susiwijono Moegiarso, said the number of middle-class households has declined since the pandemic, now around 17%. However, the number of aspiring middle-class households has risen, so combined they remain the mainstay of domestic consumption. He noted that about 54% of household consumption comes from this group, with household consumption itself accounting for more than half of Indonesia’s GDP. The Bureau of Statistics (BPS) put Indonesia’s economic growth for 2024-2025 at around 5%, with household consumption as the key driver.

“With 54% of household consumption and around 80% coming from the middle class, this group is very important,” Susiwijono said.

In parallel, the government has rolled out various measures to preserve purchasing power, including energy subsidies, wage subsidies, and credit programmes (Kredit Usaha Rakyat, KUR). “Demand-side support includes all these aids, with internship programmes also being continued,” he added. The government has also formed a task force to combat illegal imports and promote import substitution to protect domestic industry, particularly textiles and other labour-intensive products.

On the global trade front, the government is aiming to cut export tariffs to zero for the European Union under the IEU-CEPA agreement, effective 1 January 2027. Implementing this trade deal is expected to bolster the domestic industry which has been under pressure. “Why are textiles and apparels moving to Vietnam? Because they have zero tariffs. We hope that once we join, the implementation by 1 January 2027 means our tariffs will be zero and that could boost the sector,” he said.

In the same discussion, Emilya Soesanto, Deposit, Wealth Management, and Training Head at UOB Indonesia, assessed that Indonesia’s middle class is increasingly vulnerable. The UOB ASEAN Consumer Sentiment Study (ACSS) 2025 shows 37% of middle-income households earning Rp6-10 million per month are cutting back on investments, a larger share than those increasing their investment (24%). In the same group, 22% are reducing their allocations to insurance, compared with 11% who are increasing insurance. “This may reflect rising essential needs. When essentials rise, room for investment and insurance shrinks,” she noted.

However, the opposite trend is seen among mass affluent groups earning Rp10-60 million per month, where 38% are increasing investment allocations versus 19% reducing them. She emphasised the importance of an emergency fund in times of volatility. Today’s middle class aged 17-40 appears more aware of the need for such reserves. “An emergency fund is money set aside, not money left over. It is crucial in a period of high uncertainty.” She added that disciplined investment strategies matter more than merely following trends, and routine investing methods such as dollar-cost averaging are more effective than trying to time the market.