Middle-class growth has been partially furloughed; in its place, poverty is rising
Middle-class growth has been partially furloughed; in its place, poverty is rising © Bloomberg

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Coronavirus has interrupted the supposedly inexorable rise of the middle classes. Once a trend on which the hopes of governments and purveyors of everything from shampoo to financial services were predicated, middle-class growth has been partially furloughed. In its place: rising poverty.

According to the World Bank, the pandemic will tip up to 60m people into extreme poverty — that is, living on less than $1.90 a day. That will undo the progress made in the past five years. Slashed remittances — a big source of income for countries from the Philippines to India — and lost jobs weigh disproportionately on the poor. Depending on the severity of the impact on consumption, the Asian Development Bank sees its developing country members’ poor rising by between 90m and 400m. With nearly one person in five, or 734m people, already living on $3.20 or less a day, that is a big reversal for a continent spearheading the elevation towards better lifestyles.

China, whose shoppers account for a third of luxury goods sales and whose students pony up a good chunk of UK universities’ financing, was at the forefront of that trajectory. Since it began opening in 1978 about 850m have been lifted out of poverty, according to the World Bank. Premier Li Keqiang last month spoiled that narrative, admitting two-fifths of the population make less than $140 a month.

Line chart showing Child poverty was on the rise even before Covid-19

Measures and definitions vary. Many Chinese provinces set the bar at Rmb3,500 ($494) a year, one-third below the World Bank’s metric. In India, just 40 per cent of those categorised middle class in 2014 — earning the equivalent of $1,900 a year and above in today’s money — had running water. Half did not have a flushing toilet, according to the National Council of Applied Economic Research.

So much for the developing world. The US, home to hollowed-out cities and shuttered factories, was a harbinger. In the UK, where it has taken a youthful footballer to convince the government to provide free school lunches through the summer break, one in three children live in poverty. That is a higher rate than 50 years ago.

Chart showing number of people in extreme poverty

Even before the pandemic, the UK was set to flunk its Sustainable Development Goal target on inequality. The Resolution Foundation, an independent think-tank, reckoned income growth for the poorest 40 per cent would fall below, rather than exceed, overall growth. That looks all the more likely now.

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