Experts have warned that the Covid-19 pandemic will leave deep scars in the global economy, with middle-income families expected to shoulder the brunt of the impact.
While $26 trillion worth of crisis support and the arrival of vaccines have fueled a faster recovery than many anticipated, the legacies of stunted education, the destruction of jobs, war-era levels of debt and widening inequalities between races, genders, generations and geographies will leave lasting scars, most of them in the poorest nations, Bloomberg reported.
“It’s very easy after a gruelling year or more to feel really relieved that things are back on track,” said Vellore Arthi of the University of California, Irvine, who has examined the long-term health and economic hit from past crises.
“But a lot of the effects that we see historically are often for decades and are not easily addressed.”
All told, the decline in gross domestic product last year was the biggest since the Great Depression.
The International Labour Organisation estimates it cost the equivalent of 255 million people full-time jobs. Researchers at the Pew Research Centre believe the global middle class shrank for the first time since the 1990s.
Economists have also warned that the recovery is likely to be uneven, with developing countries such a South Africa expected to be worse off compared to wealthier nations such as Australia, Japan, Norway, Germany and Switzerland.
Data published by Pew Research in March 2021 found that the ranks of the global middle class fell by 90 million people to almost 2.5 billion last year.
Middle class – those “middle income” and “upper-middle income” people – are defined as those earning between $10 and $50 a day.
- Middle income: $10-$20 (R147 – R294) per day;
- Upper-middle income: $20-$50 (R294 – R735) per day.
That helped swell the ranks of the poor, or those living on less than $2 (R29) 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.
Local financial experts said that they have seen an uptick in debt-related queries over the past few months as the effects of the country’s lockdown is still being felt, with the middle-class particularly hard hit.
The number of people in debt who are relying on their credit to stay alive has sky-rocketed, leaving the South African economy teetering on the edge of borrowed time, said Hans Overbeek, founder and chief executive of Cyber Finance.
While the impact is being felt by all sectors and groups, Overbeek said that middle-class families are falling increasingly behind.
“Many permanently employed workers have had to transition to contractual or informal employment, as businesses try and mitigate their own losses,” he said.
“Households below the poverty line have increased dramatically, while an estimated 34% of middle class families are estimated to fall into vulnerability.”
Statistics released in March by the SA Human Rights Commission (SAHRC) revealed over 50% of South Africa’s credit-active consumers (19 million) are over-indebted.
This has been compounded by South Africa’s low level of savings, said Neil Roets, chief executive of debt counselling firm, Debt Rescue.
“Coupled with widespread retrenchments, and salary cuts, consumers are financially stressed and as 2021 progresses it’s likely we will see this situation get worse before it improves,” he said.
“Add to this that credit providers are now aggressively pursuing collections after the end of payment holidays, we are in for a very rough ride.”
It could get worse
Experts have also warned of an increase in costs in the coming months.
Record fuel price increases are grabbing headlines at the moment, but home sellers should be even more concerned about the increases in municipal tariffs that will be implemented in the coming months, said Gerhard Kotzé, managing director of the RealNet estate agency group.
These are set to be bigger than usual this year and could substantially increase your holding costs as a seller if your property is not priced correctly and takes a long time to sell, he said.
“Those who receive their electricity supply directly from Eskom will already be experiencing an increase of around 15%, and electricity costs in most municipalities are expected to rise by the same percentage from 1 July, thanks to the recent High Court order formalising an agreement between Eskom and the National Energy Regulator.
“Meanwhile municipal water costs are expected to increase by between 6% and 10% this year, having already risen by far more than the rate of inflation over the past few years, while refuse removal and sanitation cost increases are also expected to be higher than the rate of inflation in most cases.”