Indonesia may be facing a dangerous turning point in its economy.

The latest report from the Institute for Economic and Social Research, Faculty of Economics and Business, University of Indonesia (LPEM FEB UI) entitled: Indonesia Economic Outlook Q2-2025 reveals a surprising trend that Indonesia's economic growth seems to be starting to lose its main "fuel".

Between 2000 and 2019, Indonesia regained momentum, marked by broad-based improvements across the economic spectrum. The poverty rate fell from 18.95% to just 9.41%.

The middle class grew rapidly from 4.4% to 21.45%, and the share of vulnerable groups declined significantly. All indicators point positively.

However, since 2018, the tide has begun to shift, and not entirely due to the Covid-19 pandemic. Although the pandemic accelerated the crisis, LPEM FEB UI emphasized that signs of contraction had already emerged.

2024 was both a bright spot and a warning, as although the poverty rate was successfully reduced to 9.0%, the number of vulnerable groups rose sharply to 24.2%.

In fact, the middle class, which is the main driver of domestic consumption, has plummeted to 17.1%, equivalent to the level of seven years ago.

"It's important to note that this weakening is not solely due to structural disruption from the Covid-19 pandemic, as the contraction has been occurring since 2018. The past five years have shown that Indonesia is starting to run out of growth sources," wrote LPEM FEB UI in its report, quoted Sunday (May 4).

LPEM FEB UI stated that the existing growth model is indeed capable of preventing many people from falling back into poverty, but it is not strong enough to protect them from vulnerability.

This could mark the end of two decades of improving welfare that shaped the first two decades of this millennium.

"Given the current trends, Indonesia's consumption-based economic fundamentals are starting to show signs of decline," he said.

Source: Kontan

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