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2 Jan 2025 18:56
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  •   Home > News > International

    Australian exporters want a growing middle class in Asia, but there are signs it's shrinking in Indonesia

    Indonesia's new President Prabowo Subianto wants to make the country one of the fastest-growing economies in the world. But data shows the country's middle class is shrinking.


    Indonesia's new President Prabowo Subianto wants to make the country one of the fastest-growing economies in the world, despite government data showing the middle class in South-East Asia's largest country is shrinking.

    Mr Subianto was sworn in last month and reiterated an election pledge to pump up Indonesia's GDP growth from about 5 per cent a year to 8 per cent.

    But a decline in the size of the country's middle class is raising some doubts about the future economic potential.

    The data, combined with slowing growth and population declines in some other Asian countries, is raising concerns about how much Australian exporters can bet on a burgeoning Asian middle class in the future.

    Is Indonesia's middle class shrinking?

    In August, the Indonesian government statistics agency presented figures showing that the number of people classified as "middle class" stands at just under 48 million people, or 17 per cent of the population.

    When last assessed in 2019, that figure was 9 million higher and accounted for 21 per cent of Indonesians.

    The government defined the middle class as people who spend between 2 million and 9.9 million Indonesian rupiah ($197 or $958) a month, in line with a definition from the World Bank.

    The shift in this year's statistics showed a lower spending bracket, dubbed the "aspiring middle class", increasing by about 8 million people.

    The lingering effects on the economy of the COVID-19 pandemic, a general shift to "gig economy" jobs and increasing automation in labour heavy sectors — such as mining — have been cited as reasons for the change.

    "It is very difficult to find a job, and some of my classmates who graduated with me from university are doing motorbike food delivery to survive," said Ibnarsyah Almuda, a job seeker in Jakarta with a background in medical equipment.

    But while the figures have ignited concerns about Indonesia's long-term goals to become a high-income country, they have also raised eyebrows among some analysts.

    They point out that other indicators of increasing middle class prosperity, such as movie box office sales and domestic travel, have shown growth in recent years.

    And in the areas where Australia trades with Indonesia, there are similar signs that the middle class is still growing.

    How Australia is trying to cash in on growth in Asia

    Aside from raw materials, Australian exporters have largely shaped their economic plans around a burgeoning middle class in Asia.

    China, Japan and South Korea are the top three export countries, but all of them have shrinking populations.

    India, now the fourth-largest export destination by value, is still growing and seen as a market of huge potential.

    As is Indonesia, which despite having about 280 million people, isn't even a top 10 trading partner for Australia.

    But while a shrinking middle class might prompt concern, Australian exporters and service providers aren't feeling it.

    University enrolments in Australia by Indonesian students are higher than five years ago, with more than 22,000 attending this year.

    Australian exports of beef are also on track for a record year, and the steady growth of chilled beef destined for the shelves of high-end supermarkets and restaurants doesn't suggest a drop off in middle class consumption habits.

    "We expect consistent growth of beef consumption by 5 per cent each year," said Valeska, the regional manager for south-east Asia for Meat and Livestock Australia (MLA).

    She said consumer confidence in Indonesia remained strong, and MLA's own assessment of middle class consumption shows growth ahead.

    "When MLA tracks the Indonesian middle class, we use a price point of $US35,000 per annum ($52,200) as the gauge of who can consistently afford to eat beef," she told the ABC.

    "And the number of people in that category have been growing every year. From 2.5 million now, we think it will be 4 million by 2026."

    Why Indonesia will need to make tough economic decisions

    Unlike major export markets such as China and Japan, where populations are aging and shrinking, Indonesia's overall population is forecast to keep growing in the decades ahead.

    Long-term, Indonesia's government is relying on the middle class to rapidly expand to avoid the dreaded "middle-income trap", where a country develops to a mid-level of wealth per capita, but doesn't continue to high-income status.

    Earlier this year, the country's economic planning agency stated a goal that 80 per cent of the population will be classed as middle class in 2045, a massive leap in just two decades.

    "If you want to boost economic growth, you need other sources of growth," said Arianto Patunru from the Australian National University's Crawford School of Public Policy.

    "I think what Indonesia needs now is to have more support from trade, and there's no country in history that can have high growth without opening up their economy more."

    But Mr Subianto also regularly talks about Indonesia needing to become self-sufficient, a sentiment that doesn't suggest a greater opening up economically.

    "We cannot just rely on the domestic market to boost growth," said Dr Patunru, who casts doubt on achieving Mr Subianto's economic target.

    "I think it's a bit too high a goal, 8 per cent GDP growth is very ambitious.

    "But I agree we need ambitious targets, most importantly, to help eradicate poverty."


    ABC




    © 2025 ABC Australian Broadcasting Corporation. All rights reserved

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