Global middle class shrinks by 90 million amid pandemic: Study

WASHINGTON • 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 that they had suffered a loss in income, according to two new estimates based on World Bank data.

In a study published on Thursday, researchers at the US-based Pew Research Centre found that the ranks of the global middle class - middle-income and upper middle-income people earning US$10 to US$20 and US$20 to US$50 per day respectively - fell by 90 million people to almost 2½ billion last year.

That helped swell the ranks of the poor, or those living on less than US$2 (S$2.70) a day, by 131 million people, Pew estimated.

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

That suggests that 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 - more than the combined population of France and Germany.

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

The impact may not be over.

Concerns are growing about the consequences of a slower recovery in emerging economies and the continuing fallout from the crisis.

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.

In 2011, when Pew last calculated the number of the world's middle-income earners, they made up 13 per cent of the global population.

By 2019, that had grown to nearly 18 per cent, Dr 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 on Monday based on surveys of 47,000 households in 34 developing countries, World Bank researchers found that 36 per cent of households saw job losses and almost two-thirds saw incomes fall last year.

Estimated number of people who fell below the World Bank's US$1.90 (S$2.55) line for extreme poverty last year.

163m

Projected number of new poor this year.

The result was the first increase in global poverty seen since the Asian financial crisis of 1997-1998, the bank's researchers wrote.

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

But they also point to the consequences that slower recoveries are expected to have.

While the United States 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 at September last year, advanced economies had on average spent 7.4 per cent of gross domestic product (GDP) on rescuing businesses and people hit by the pandemic versus 3.8 per cent of GDP in emerging markets and 2.4 per cent in low-income developing countries.

With countries like the US moving rapidly to vaccinate their populations and extending their government rescue efforts since then, the gap has only widened.

The World Bank expects the ranks of the world's poor to continue to grow this year.

Its estimates show that as many as 124 million people fell below its US$1.90 line for extreme poverty last year.

That number of new poor is projected to continue growing this year to as many as 163 million people.

What happens next to the ranks of the global middle class will depend heavily on the recoveries in key countries like India and remains hugely uncertain, said Dr Kochhar.

If growth bounces back as the coronavirus is vanquished, this episode may end up being just a "sharp, scary roller-coaster ride that - in geological time - is over in a flash", he said.

But growth may also be slower to return in many developing countries, he added.

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