Income and Expenditure Indonesia: The Country’s Middle Class Will Continue to Expand Robustly

Euromonitor International’s Indonesia Income and Expenditure Country Briefing focuses on one of the key emerging markets with the best middle class potential. In 2016, the country recorded the world’s fourth largest middle class with 19.6 million households, which is expected to rise to 23.9 million in 2030, making this group a prominent consumer force in the country. The continued expansion of middle class can be mainly attributed to falling poverty, improved income equality and government measures to boost middle class purchasing power.

Indonesia’s huge youthful consumers are expected to witness rising income and expenditure:

• A long-term increase in disposable income levels has made more Indonesian consumers spend more on discretionary categories as well as looking beyond price in the purchases of goods and services. After a slowdown observed in 2015, growth of income and spending of Indonesian households recovered in 2016, on the back of the partial rebound in commodity prices, higher availability of credit and easing inflation;
• Meanwhile, income inequality is set to decline over the long term. Indonesia’s Gini index stood at 38.0% in 2016, down from 41.0% in 2011, and is expected to further fall to 36.3% in 2030. Thanks to improved income distribution, social class C (the middle class) showed the strongest rate of expansion between 2011 and 2016, and it is forecast to remain as the country’s fastest growing through to 2030;
• Communications is forecast to be the fastest-growing category over 2017-2030, due to rising penetration rates of internet services and digital devices like laptops, smartphones and tablets amongst the expanding middle class;
• Over 2017-2030, Kepulauan Riau, Papua, and Kalimantan Timur are forecast to be Indonesia’s fastest-growing consumer markets, driven by anticipated stronger population expansion in these provinces.

Overview of Indonesia’s Social Classes

Government’s measures will help boost middle class expansion

Indonesia offers great growth potential for consumer goods companies, given its large and expanding population base, rising disposable incomes and urbanisation. In a bid to further expand consumption levels and the middle class, the government has been implementing various reforms. Under the country’s current (2015-2020) five year development plans, which is a part of its broader National Long-Term Development Plan (2005-2025), the government is focusing on investing in programmes that have a direct positive impact on the lower income earners via spending on infrastructure, education and healthcare. Although the pace of poverty reduction has slowed down lately mainly owing to lower than expected economic growth, the government is determined to eradicate all slums across the nation by 2019. These measures should help the country’s middle class further expand going forward, generating a significant consumer base to drive demand and spending in the country.