Indonesia's shrinking middle class casts shadow on economic growth | Business and economy

Medan, Indonesia Halimah Nasution felt like she had it all.

For years, she and her husband Agus Saputra made a good living renting supplies for weddings, graduations and birthday parties.

Even after splitting their income among several of their siblings, the couple from Indonesia's North Sumatra province earned around 30 million rupiah ($1,917) each month.

Spending about a quarter of their income each month, the couple belonged to Indonesia's upper middle class, officially defined as those with monthly expenses between two million rupiah ($127) and 9.9 million rupiah ($638). .

Then the COVID-19 pandemic hit.

Community events and social gatherings have been banned across Indonesia.

For a couple who had made celebrations their business, the confinements dealt a devastating blow.

We lost everything, Nasution told Al Jazeera.

Several years later, the couple has yet to find their way back.

They are among millions of Indonesians who have escaped the Southeast Asian country's shrinking middle class.

The number of Indonesians classified as middle class fell from 57.3 million in 2019 to 47.8 million this year, according to data from the Central Bureau of Statistics.

The number of people classified as belonging to the aspiring middle class rose from 128.85 million to 137.5 million over the period, according to the statistics agency.

Together, these two segments make up about two-thirds of Indonesia's 277 million people.

Economists have attributed the decline to a variety of causes, including aftershocks from COVID-19 and gaps in the country's social safety net.

Ega Kurnia Yazid, policy specialist at the government's National Team for Accelerating Poverty Reduction, said several interconnected factors had contributed to this trend.

First of all, [Indonesias middle class] contributes mainly to tax revenues but receives limited social assistance, most of which is paid through formal employment mechanisms such as job security and national health insurance, Yazid told Al Jazeera.

At the same time, other forms of assistance, such as cash transfers and energy subsidies, often suffer from inclusion errors and are not effectively channeled to this group.

Nasution and her husband faced this lack of support themselves when their business collapsed.

We received no help from central government when we were no longer able to work during the pandemic and only received a small amount from our local village office to help us with our groceries, but this was only 300,000 rupees per month. [$19]she said.

Indonesia's economy has been growing steadily since the end of the pandemic, with annual gross domestic product (GDP) growth of around 5 percent.

But like many of its developing peers, Southeast Asia's largest economy relies heavily on trade, leaving it exposed to slowing global growth.

Major trading partners like the United States, China and Japan are experiencing contractions, as indicated by the Purchasing Managers' Index (PMI), leading to reduced international demand for Indonesian raw materials, said Yazid.

This adds additional pressure on the middle class.

Adinova Fauri, an economics researcher at the Center for Strategic and International Studies (CSIS), said tensions in Indonesia's middle class reflect deeper structural problems, particularly the impact of deindustrialization in Indonesia.

The manufacturing industry, which once absorbed a large part of the workforce, is no longer able to do so. A significant part of the workforce has moved to the service sector, much of which is informal and offers lower wages and minimal social security, Fauri told Al Jazeera.

To remedy the situation, working conditions and productivity must be improved, he said.

We can no longer compete with countries like Vietnam or Bangladesh on low wages alone. Instead, we need to strengthen working conditions and regulations to access new markets, like the United States, that prioritize better labor standards, Fauri said.

Productivity is also a crucial issue, not only in terms of skills but also in terms of worker health. We should also learn from other countries by investing in research and development and fostering innovation to boost productivity.

The inauguration of President Prabowo Subianto last month as Indonesia's eighth leader, replacing Joko Widodo, better known as Jokowi, has raised hopes for the economy in some quarters.

During his election campaign, Prabowo pledged to achieve 8 percent GDP growth and eliminate child poverty and stunting by launching a free school meals program.

Meanwhile, Nasution and his family continue to pick up the pieces of their shattered lives.

After purchasing many expensive items, such as furniture and stages, on credit, she and her husband quickly found themselves in dire financial straits once business dried up.

We sold our car, sold our land and mortgaged our house, Nasution said. He is dead. Our business just completely died.

Nasution's husband took the first job he could find, harvesting oil palm fruits for about 2.8 million rupees ($179) a month.

Nasution took a housekeeping job, working from 8 a.m. to 1 p.m. six days a week for a monthly salary of around 1 million rupiah ($63).

Today, the couple spends a little less than the threshold of two million rupees ($127) which marks entry into the middle class.

Our life is so different now and we are still not stable like before. We need capital to restart the business, but we cannot save money to do so, Nasution said. We would need to purchase or rent all the equipment we previously owned for parties.

We barely have enough money to live on, but life is full of ups and downs, and I hope things get better, she added.

At this point, I leave it up to God.