South America: Region’s middle class has grown 50 percent on average in last decade

Pew Research Centre study reports Latin American middle class grew by 50 percent between 2001 and 2011; 63 million people left poverty; Argentina’s middle class records strongest growth of 114 percent; Tough economic times ahead and challenge to stop people falling back into poverty

A recent Pew Research Center report titled ‘a global middle class is more promise than reality’, reported that South America’s middle class has grown by around 50 percent over the last decade (2001-2011).

According to the study, the percentage of South Americans living in a ‘middle-income’ bracket grew from 16 percent in 2001 to 27 percent in 2011, as some 63 million people crossed the $10 USD per day threshold. It is important to note the study identifies this as a global middle class, which does not necessarily resemble the real-term dollar value of the middle class in developed nations.

In 2001 the percentage of the population living in the middle-income group in South America was only above 20 percent in three countries. However, by 2011 nine (out-of-ten) South American countries, and Mexico, had at least a 20 percent share of the population in the middle-income group. Following that trend, ten countries also saw the share of those in upper-middle-income brackets grow to double figures, up from just four countries in 2001.

Equally, the regional increase of the middle class saw it becoming the majority group in both Argentina and Chile. Not far behind, Brazil and Mexico fell just short of having a majority of their population in the middle-income bracket.

A World Bank report also found that the region’s income gap narrowed over roughly the same period, as the earnings of lower income households grew while those in higher income households fell.

The Pew report also notes South America accounts for 16 percent of middle class growth globally. The region, which houses just nine percent of the world’s population, accounts for 18 and 13 percent of the globe’s middle income and upper-middle income groups respectively.

All South America countries experienced middle class growth to a differing degree over the last decade.

At the top end of the spectrum was Argentina, where the middle-income share shot up from 15 percent in 2001 to 32 percent in 2011 according to a World Bank study; an increase of 114 percent. Over the same period, the upper-middle-income group grew to 24 percent, from 7 percent. A recent Inter-American Development Bank (Banco Interamericano de Desarrollo, BID) figure estimated Argentina’s middle class population to be around 54.5 percent of the whole country (secondly only to Uruguay’s 55.8 percent).

Other countries across the region also recorded strong growth: Brazil went from 18 to 28 percent, Chile 15 to 23 percent, Colombia 11 to 21 percent, Ecuador 8 to 21 percent, Mexico 17 to 26 percent, Peru 14 to 25 percent, Uruguay 20 to 30 percent and Venezuela 20 to 30 percent.

A positive side effect of such large numbers migrating towards the middle class meant an estimated 73 million people were lifted out of poverty. Now, for the first time ever, there are as many people in South America living in the middle class as in moderate poverty, which according to a World Bank study equates to around 30 percent in each group.

Experts have highlighted several factors that have contributed to Latin America’s sustained economic and middle class growth over this period. Among them, the World Bank’s Latin America Regional Chief, Augusto de la Torre, said the increase is ‘related to the drop in unemployment rates and informal employment. Therefore, the growth of the middle class in the past ten years is down to growth dynamics and job creation’.

The Washington-based organisation also attributes the entry of 70 million women into the workforce as a positive effect whose additional income has been critical in expanding the middle economic groups.

Arguably, none of this would have been possible without a global boom in commodity prices driven by emerging markets, especially China, which sustained Latin American growth levels from the early 2000s. This growth was supplemented in many countries by economic redistribution policies as several South American nations elected left-wing governments with mandates to reduce poverty.

As is often the case with boom periods, a bust follows, which currently appears to be the case in Latin America. The export-dependent powerhouse economies of Brazil and Argentina, in particular, have been hit hard by an international drop in commodity prices. The International Monetary Fund (IMF) recently lowered regional growth figures for the rest of this year to less than 1 percent, the fifth consecutive year of decline.

Despite the fact that South America has made indisputable progress in recent years, the challenge is now to ensure, in a less favourable economic climate, that growth continues and, importantly, that vulnerable groups closest to the poverty line do not slip back into penury. A poignant reminder of this is that still more than two-thirds of Bolivia, Colombia, Ecuador, Mexico and Peru were classed as poor or low income in 2011.