Jakarta. Indonesia’s economy is still expanding at a respectable pace. Growth reached 5.12 percent in the second quarter of 2025, according to the Central Statistics Agency (BPS). Output stood at nearly Rp5,947 trillion ($374 billion) at current prices, up from 4.04 percent in the previous quarter. Investment and exports led the way, with foreign sales of goods and services surging by more than 10 percent.

Yet the headline figure conceals a nagging weakness: household consumption, the single largest component of GDP, grew by just under 5 percent. That is below the pre-pandemic norm and far too sluggish for a country that has long relied on domestic spending. A raft of government measures --from discounts on toll roads and public transport to wage subsidies-- have helped cushion lower-income households. But the middle class, often praised as Indonesia’s economic backbone, has been left to fend for itself.

This oversight is becoming harder to ignore. The number of Indonesians classified as middle class has shrunk from more than 57 million in 2019 to just under 48 million last year. Their waning purchasing power is a worrying sign for policymakers, who prize stability and broad-based growth.

A Fragile Backbone

Middle-income households are more than consumers. They are also the country’s most dependable taxpayers, reliable borrowers, and supporters of small businesses. They absorb much of the cost of education and health, help underwrite financial stability, and contribute to social cohesion. “They are the engine of consumption and the symbol of national aspiration,” says Achmad Nur Hidayat, a policy scholar at UPN Veteran University in Jakarta. “If their purchasing power collapses, the economic and political consequences will be severe.”

That engine is sputtering. Inflation overall is manageable at 2.37 percent, but prices for services vital to the middle class are rising faster. Education costs climbed by 5.8 percent in July, while healthcare was nearly 5 percebnt more expensive. Wage growth, by contrast, has lagged. Average formal-sector salaries rose by just 3.8 percent in the year to February, leaving workers with barely any real increase. Adjusted for the cost of schooling and medical care, middle-class families are losing ground.

The contrast with Indonesia’s poverty-alleviation schemes is stark. Subsidized rice, conditional cash transfers, and free schooling programs have absorbed hundreds of trillions of rupiah in recent years, and with measurable effect: poverty rates have fallen. Yet such schemes bypass households whose incomes are too high to qualify but too modest to comfortably absorb rising costs.

Calls for a Rethink

Economists say this imbalance could weaken the recovery. “Additional incentives for the middle class are crucial,” argues Josua Pardede, chief economist at Permata Bank. He suggests temporary tax breaks, targeted energy subsidies, or time-bound cash support to offset external shocks such as global food-price inflation or commodity swings.

The government’s response has been piecemeal. A Rp 24.4 trillion stimulus package in the second quarter was credited with nudging growth past 5 percent. But most of that money went into broad measures --discounted transport, one-off cash handouts-- that benefited poorer households more than professionals or salaried employees. A further Rp 10.8 trillion is earmarked for the third quarter, with Finance Minister Sri Mulyani Indrawati promising to keep fiscal policy “counter-cyclical” to sustain momentum. Officials are also preparing end-of-year incentives ahead of the Christmas and New Year holidays.

Still, the sums involved are modest compared with Indonesia’s nearly Rp 3,400 trillion economy. Worse, public spending contracted by as much as 14 percent in the first half of the year, limiting the multiplier effect. “The government needs to accelerate budget absorption and channel it into job creation in the formal sector, which has been hit by layoffs,” says Ahmad Mikail Zaini of Sucor Sekuritas. Too much growth is now concentrated in informal work, where wages and benefits are minimal.

Global Headwinds

External risks complicate the picture. Indonesia has enjoyed buoyant exports of commodities such as palm oil, coal and nickel. But trade wars between America and China, conflict in the Middle East, and volatile energy prices are making planners nervous. Growth forecasts for the year hover between 4.7 percent and 5.1 percent, slightly below last year’s pace.

Foreign investors remain interested, particularly in infrastructure projects ranging from mass transit in Jakarta to industrial estates outside Java. Yet sustaining confidence will require a consumer base large enough, and wealthy enough, to absorb rising output.

That is why some argue for a more ambitious policy reset. Esther Sri Astuti of the Institute for Development of Economics and Finance (Indef) says the government should stop seeing the middle class primarily as a tax base. Instead, it should treat them as a strategic asset worth nurturing. Ideas include tax deductions for education and healthcare, subsidized skills training, and stronger protections against job losses. “The current stimulus policies only boost consumption among low-income households. Meanwhile, middle-class households are also struggling. They are the largest taxpayers, yet they receive no incentives,” Esther said.

Political Stakes

The debate has political resonance. Lawmakers in parliament’s Commission XI, which oversees finance, have urged the government to extend stimulus to middle-class households squeezed by layoffs and weaker earnings in manufacturing, services, and the creative industries. “Inclusive stimulus will strengthen national resilience,” says Charles Meikyansah, a legislator from the National Democrat (Nasdem) Party.

President Prabowo Subianto, who took office earlier this year, has so far emphasized continuity: big infrastructure, export promotion, and welfare transfers for the poor. But sustaining Indonesia’s reputation as one of the world’s most dynamic emerging economies may require paying more attention to its middle.

For now, the data paint an uncomfortable picture. Growth is steady, investment robust, and exports healthy. Yet the country’s once-celebrated middle class is eroding, caught between rising living costs and stagnant wages. Unless that trend is reversed, Indonesia risks discovering that an economy without a strong middle is one without a secure foundation.