Covid-19 cuts over 150m from middle-income rank

The global middle class shrank for the first time in decades last year because of the Covid-19 pandemic, with almost two-thirds of households in developing economies reporting they suffered a loss in income, according to two new estimates based on World Bank data.

In a study published Thursday, researchers at the non-partisan Pew Research Centre found that the ranks of the global middle class - those “middle income” and “upper-middle income” people earning $10-$20 (Sh1,090 - Sh2,180) and $20-$50 (Sh2,180 to Sh5,450) per day respectively - fell by 90 million people to almost 2.5 billion last year.

That helped swell the ranks of the poor, or those living on less than $2 a day, by 131 million, Pew estimated.

The Pew data on the middle class actually understates the impact because an estimated 62 million high-income people, or those earning $50 or more per day, dropped into the middle tier as a result of the pandemic, said Rakesh Kochhar, the study’s author.

That suggests the number of people who went into the crisis as members of the global middle class and fell out actually topped 150 million last year, according to Pew’s estimates - more than the population of France and Germany combined.

“In modern history it is hard to come up with examples where you saw such a sharp downturn in global economic growth,” Kochhar said in an interview.

The impact also may not be over. Concerns are growing about the potential consequences of a slower recovery in emerging economies and the continuing fallout from the crisis.

Brazil’s central bank on Wednesday announced its biggest increase in its policy rate in a decade in response to growing fears of inflation.

Economists are also watching the possible fallout for emerging nations of rising US Treasury yields and a strengthening dollar as the US economy accelerates.

If the Pew estimate holds true in actual World Bank income data still being gathered, it would mark an end to a pattern that has seen the global middle class expand without fail since the 1990s thanks to the rapid growth of developing economies like China and India.

When Pew last calculated the number of the world’s middle-income earners - or those with incomes of $10-$20 per day - in 2011, they made up 13 per cent of the global population.

By 2019, that had grown to nearly 18 per cent, Kochhar said, with an average of 50 million people a year joining the middle-income ranks over the past decade.

In a separate paper published Monday based on surveys of 47,000 households in 34 developing countries with a collective population of almost 1.4 billion people, researchers at the World Bank found that 36 per cent of households saw job losses last year and almost two-thirds saw incomes fall.

The result was the first increase in global poverty seen since the Asian financial crisis of 1997-98, the bank’s researchers wrote.

Slower recoveries

As in many rich countries, the surveys of countries ranging from Burkina Faso to Colombia, Indonesia and Vietnam show the burden of the economic hit disproportionately fell on women, young people and the self-employed in urban centers.

But they also point to the consequences that slower recoveries are expected to have. While the US has unleashed unprecedented fiscal rescue efforts for its economy, many developing economies have had smaller resources to draw on.

According to the World Bank, as of September 2020, advanced economies had on average spent 7.4 per cent of gross domestic product on rescuing businesses and people hit by the pandemic versus 3.8 per cent of gross domestic product in emerging markets and 2.4 per cent in low-income developing countries.