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Indonesia’s rapidly shrinking middle class Meanwhile, various business sectors must adapt to changes in consumer spending habits. Pizza Hut Indonesia, which is operated by Sarimelati Kencana, is one of the businesses directly affected, with the company announcing the closure of 20 branches and reducing the number of employees. The company stated that the reason for the decision was due to the more cautious spending trend of the country’s middle class. Boy Lukito, chief executive officer of Sarimelati Kencana, told the Financial Times that there is now a clear shift in consumer behavior. Indonesians are becoming more prudent in their spending amid economic uncertainty. According to a recent report, the number of people classified by the government as a middle-class has fallen by 20% in the past six years. But it also includes other industries such as automotive and retail, which are facing a decline in demand due to weaker purchasing power.

Economists point to several key factors behind this change, including the lack of employment opportunities in the formal sector. Insufficient investment in high-income industries and over-reliance on Indonesia’s commodity industry sector have resulted in low-paying employment. These factors are all the main drivers of such problems. In addition, the COVID-19 pandemic It also exacerbates economic pressure. Indonesia’s middle class once peaked at around 60 million in 2018, but by March 2024, that number has dropped to less than 48 million. The proportion of the population classified as middle-class has decreased from 23% in 2018 to only 17% today. In addition, the increase in employment in the informal economy, which is generally low wages and high uncertainty, has increased employment. The more severe the economic challenges, the more the impact of the weakening middle class is not limited to the small business sector. But it is also a major obstacle to President Prabowo Subianto’s economic growth goals, which aim to push Indonesia’s GDP growth to 8% within the next five years. Analysts warn that if the government fails to address structural issues affecting the middle class, such as creating high-paying formal sector jobs and promoting investment in the manufacturing sector, it will be able to solve the problem. The country’s growth targets may face risks.

“The government needs to focus on improving production efficiency and competitiveness,” he said, reducing bureaucratic procedures and promoting foreign direct investment in export-oriented industries.” Former Minister of Finance and Government Advisor said that the signs of an economic slowdown are clearly visible. Consumer spending has decreased. The deflationary rate has affected the country for five consecutive months in the past year, and the forecast for economic growth in 2025 has been lowered. Car sales in 2024 will decline by 14% due to weaker consumer purchasing power. Despite these challenges, businesses like Pizza Hut Indonesia are adjusting their strategies to survive. Mr. Boy Lukito explained that the company has implemented a promotional plan. Expand the menu and provide catering services at weddings and concerts. To attract customers in a market where consumers spend more carefully. however Most consumers are still cautious in their spending, focusing primarily on savings and essential expenses. As Indonesia grapples with changing economic realities, the shrinking middle class is a major lesson for both domestic and foreign investors, including giants like Apple, who have been hoping to capitalize on Southeast Asia’s growing consumer market. Indonesia’s path to a prosperous future remains fraught with uncertainty.

Office Reviews

Indonesia is facing a shrinking middle class, a warning sign of fragility. According to the latest statistics, the number of the middle class has decreased from 60 million in 2018 to only 48 million in 2024, from 23 percent to 17 percent of the population. Complex bureaucracies can be a barrier to attracting investment, resulting in a GDP growth target of 8% within the next five years that could be challenging.

For Thailand Indonesia’s economic slowdown could affect international trade and exports of goods. Especially consumer goods that rely on the purchasing power of the middle class. In addition, Thai entrepreneurs interested in expanding their business to Indonesia may face complex regulatory hurdles and unfavorable market conditions for trade, especially in the retail and food sectors that are directly affected. However, Thai entrepreneurs should adjust the size of the packaging to have a price that is suitable for consumers with limited spending or focus on the middle to high-end target group instead.