Time to restore the middle-class economy

Jakarta - The movement of the rupiah exchange rate has always been one of the economic indicators that receives the most public attention. When the rupiah weakens against the US dollar, concerns immediately arise regarding the potential rise in prices of imported goods, inflationary pressure, and increased production costs for businesses. However, behind the great attention to the exchange rate, there lies an issue that is more decisive for the future of the Indonesian economy: the weakening purchasing power of the public, particularly the middle-class group.

This is important because Indonesia’s economic structure remains heavily dependent on household consumption. For years, domestic consumption has been the largest contributor to gross domestic product (GDP). With this economic characteristic, Indonesia’s growth is fundamentally supported by the public’s ability to continue spending, investing, and consuming various goods and services. When purchasing power weakens, the impact is felt not only by households but also by business actors, investors, and the government through an overall decline in economic activity.

This is where the position of the middle class becomes highly strategic. This group is the main engine of national consumption because it has the capacity to spend its income on various sectors, from education, health, and housing to transport and recreation. Therefore, when the middle class begins to hold back consumption, an economic slowdown can spread to multiple sectors simultaneously. Indonesia’s biggest problem today is not merely how to maintain the stability of the rupiah, but how to ensure that public purchasing power remains strong so that the engine of economic growth does not lose its power.

It is shrinking

Data from Statistics Indonesia (BPS) shows signals that deserve serious attention. In 2019, Indonesia’s middle-class population reached around 57.33 million people, or 21.45 per cent of the total population. However, by 2024, that figure had fallen to 47.85 million people, or just 17.13 per cent of the national population. This means that within a five-year period, around 9.48 million people exited the middle-class group.

The decline does not mean they fell directly into the poor group. Most shifted to the aspiring middle-class group, a segment of society that is still relatively secure economically but is highly vulnerable to shocks. At the same time, the number of the aspiring middle-class group increased to around 137.5 million people, or nearly half of Indonesia’s population. This phenomenon shows that more and more households are in a vulnerable position: not poor, but also not yet strong enough to withstand long-term economic pressure.

This condition indicates that Indonesia is facing a new challenge. Over the last two decades, the success of economic development was measured by the increase in the number of middle-class people. Now, the opposite is occurring. The shrinking of the middle class is a signal that public economic mobility needs to be accelerated, and some families are facing difficulties maintaining the level of welfare they previously achieved.