I tend to look at the data and make silly forecasts which I come back to months after new data is released. Given that the data is history, lagging, and by the time you processed what's happening, the markets have priced in their bets. But the exercise is fun for the sake of learning something new and applying what one learns anyway.
Indonesia’s middle class population shrinks by close to 9.5 million people as experts warn against further drop. I quote from the article:
"The middle class population began to decline after the (COVID-19) pandemic, while the aspiring middle class increased," Acting BPS Head Amalia Adininggar Widyasanti was quoted by Kompas on Wednesday (Aug 28) as saying during a working meeting with the House of Representatives.
Like most countries during the early covid era, Indonesia also resorted to QE seen as mentioned in Quantitative easing in Indonesia 2020. I frequently bring up what happened in covid because it's the most recent bargain sale era for the rich to accumulate wealth. While businesses were closed, people were subsidized to maintain a close to normal standard of living by injecting more money into circulation and people pay for the usual goods and services like normal. But the ones providing the goods and services are owned by the rich, and if the rich cut down their spending on luxury goods and services, where do you think that money gets diverted to? that's buying more assets when things are going down because they already got plenty of cash flow to weather out the crisis while the rest struggled.
It's just weird that a theme when reporting the middle class is shrinking leaves out explanations on why the rich became even richer during post covid.
Below are graphs showing a trend for an increase in consumer spending, credit and confidence:
All these serve as indicators that people are willing to spend more, take debt more and are optimistic. But this should be taken with a grain of salt as it's only an "average" and not a representation of distribution.
Statista reports an average of 7.46% in mortgage rates in May 2024. The mortgage rates have been decreasing since 2020. The current interest rate set by Bank Indonesia is 6.25% and the inflation rate 1.95% reported last July 2024. It's inevitable that inflation happens over time and the ideal rate that kept below 2%.
You can see the trend on Indonesia's residential property prices increasing since 2021. If the middle class is shrinking when a history of new money is injected into the circulation during the covid era, where did the money go? if you tell me it went to the average citizen, I say you're partly right, but where does the average citizen give their money to? rent, mortgage, loans, goods and services, and which groups in society do you think really wins during recessions and recovery?
In 2021, the top 10 richest person in Indonesia had an estimated net worth of 3.5$ billion. In 2023 the 10th richest person now has an estimated net worth of 4.45$ billion. The positions may be different but the numbers that push the bar higher is evident. I say the obvious a lot but the shrinking middle class, pre, during and post pandemic is a common problem in every country and recessions make the process of making the rich even richer.
Going back to the article Indonesia’s middle class population shrinks.
One notable tax incentive, he said, is the government's plan to reinstate a full tax break on property purchases worth up to 5 billion rupiah for the second half of 2024.
If this tax break can be availed by anyone other than the middle class, guess which party can take advantage of it? The rich have ways to mitigate their taxes and even resort to splitting wealth among family members. It's a huge financial risk for a middle class family to take on a single mortgage, but this risks means little if you got generational wealth as a safety net. I took an interest diving into this story as I was coincidentally looking at consumer spending and credit trends in the Philippines but got side track by seeing the article.
Thanks for your time.