Indonesia’s middle class has long been the backbone of its economy—driving consumption, stimulating growth, and anchoring political stability. As of 2025, however, this critical demographic is showing signs of strain. What was once a symbol of Indonesia’s economic ascent is now facing erosion due to inflation, income stagnation, job displacement, and increased financial insecurity.
Check out the multifaceted reasons behind the decline of Indonesia’s middle class, its broader economic and social consequences, and how businesses can strategically respond to not only weather the storm but discover new opportunities for sustainable growth in this article.
A Snapshot of Indonesia’s Middle Class in 2025
Indonesia’s middle class had grown impressively over the past two decades, expanding from around 7% of the population in the early 2000s to more than 20% by 2020. By World Bank estimates, over 50 million Indonesians were classified as middle class before the COVID-19 pandemic.
In 2025, however, the picture has shifted dramatically:
- Urban middle-class households report increased debt, reduced savings, and decreased discretionary spending.
- Job insecurity is prevalent, especially in white-collar sectors vulnerable to automation.
- Consumer confidence has taken a hit, and many families are retreating into more frugal lifestyles.
This backslide is not just about income—it’s about lost security, opportunity, and optimism.
Key Factors Driving the Decline
1. Persistent Inflation and High Living Costs
While global supply chains have somewhat recovered post-pandemic, inflation in Indonesia remains elevated. Essentials like cooking oil, electricity, rent, and health services have seen sharp price increases. Middle-class families, once able to save or spend on leisure, are now prioritizing only survival and essentials.
2. Wage Stagnation and Labor Market Polarization
The labor market in Indonesia has become increasingly polarized:
- High-skill, high-income jobs in tech and finance are growing.
- Low-skill, low-wage service jobs persist.
- Mid-skill jobs—the core of the middle class—are either automated or offshored.
Despite economic growth on paper, real wages have barely kept up with inflation, especially in retail, manufacturing, education, and civil service roles.
3. Informal Economy and Job Insecurity
Indonesia’s informal sector remains large. In 2025, over 50% of workers are still in jobs without benefits or contracts. This undermines financial security and limits access to credit, insurance, and upward mobility.
4. Debt Burden and Erosion of Savings
During the pandemic, many middle-class households dipped into savings or borrowed to survive. The post-pandemic recovery hasn’t been fast enough to allow them to rebuild financial cushions. Rising interest rates are now worsening household debt burdens.
Source of the image: Theasianparent.com
Economic and Social Impacts
Decline in Consumer Demand
The Indonesian economy relies heavily on domestic consumption. A weakened middle class directly reduces:
- Demand for durable goods (cars, appliances, electronics)
- Tourism and leisure activities
- Private education and healthcare services
Real Estate and Property Slowdown
Home ownership—a middle-class dream—is becoming increasingly unaffordable. Rising mortgage rates, higher down payments, and stricter lending criteria have led to a slowdown in the housing market, affecting developers and banks.
SME Struggles
Indonesia’s SMEs—restaurants, retail outlets, workshops, salons—often cater to middle-income buyers. With shrinking footfall and tighter wallets, many are downsizing, shifting online, or closing altogether.
Social Tensions and Political Risk
Economic hardship breeds discontent. The middle class, once a stabilizing force, is now more vocal about inequalities. Social unrest, labor strikes, and online activism are on the rise, creating a more volatile business environment.
Business Strategies to Overcome the Decline
Despite the headwinds, businesses can still succeed—if they pivot with purpose, insight, and innovation. Below are detailed strategies that align with the evolving market landscape:
1. Repackage Products for Affordability and Accessibility
- Introduce smaller packaging sizes to reduce price points.
- Offer essential bundles at discounted rates.
- Cut non-core features while maintaining reliability.
2. Tap Into Underserved and Emerging Markets
- Focus on growing Tier-2 and Tier-3 cities.
- Customize offerings to regional cultures and needs.
- Build local distribution networks for cost-efficiency.
3. Double Down on Digital and Mobile Ecosystems
- Prioritize mobile-friendly platforms and low-data apps.
- Integrate with local e-wallets.
- Leverage social commerce and micro-influencers.
4. Make Financing Easier and Smarter
- Partner with fintechs for microloans and BNPL.
- Introduce installment plans and financial education tools.
5. Offer More Than Products—Offer Purpose
- Communicate your brand’s impact on job creation and sustainability.
- Support local causes and ethical sourcing.
- Engage in transparent, community-centered marketing.
6. Upskill and Retain Middle-Income Talent
- Invest in staff development.
- Offer flexibility and support programs.
- Foster a company culture that values long-term growth and well-being.
Long-Term Outlook: Rebuilding Trust and Demand
While the Indonesian middle class in 2025 faces considerable challenges, it is not beyond recovery. Government policy initiatives—such as expanding affordable housing, improving healthcare access, and investing in vocational education—can help build a stronger foundation for future growth.
Businesses have a vital role to play. Those that align with national recovery goals, support workers, and deliver inclusive products and services will build lasting relationships with both customers and communities.
On the whole, the decline of the middle class in Indonesia is more than an economic trend—it’s a structural challenge that demands new thinking. For businesses, it presents both risk and opportunity. By shifting from short-term gains to long-term value, companies can not only survive but lead in reshaping Indonesia’s consumer economy.
Success in 2025 and beyond will be defined by innovation, adaptability, and above all, empathy for the evolving needs of the people who have long powered Indonesia’s growth.
References:
[3]https://fulcrum.sg/growing-or-shrinking-how-indonesias-middle-class-is-really-doing
[4] https://www.ft.com/content/f1961241-b9a5-48ce-b410-9dd20bee8758
[6] https://www.asiamediacentre.org.nz/indonesia-s-economy-2025
[8]https://en.lpem.org/indonesia-economic-outlook-q1-2025-mengejar-8-kesulitan-di-5
[10]https://samuel.co.id/wp-content/uploads/2025/03/CCI_March-25.pdf
