Recovery of the middle class in Peru could take 10 years

The size of the Peruvian middle class increased in 2021 and reached 30.6% of the population, still far from the percentage of 2019 (39.2%), reported the Peruvian Institute of Economy (IPE), which estimated that the country will take a decade to recover pre-pandemic figures.

According to IPE calculations released in a statement, this estimate will be met if the Gross Domestic Product (GDP) grows at an average rate of between 2% and 2.5% each year, and even in a more optimistic scenario such as the recent projection of the Ministry of Economy and Finance (MEF) for the period 2022-2025 (3.4%), the recovery would be in seven years.

The fall was caused by the Covid-19 pandemic, which hit the economy hard and also left Peru as the country with the highest mortality rate in the world from this disease. The study affirms that, of the 4.2 million Peruvians who left the middle class in 2020, only 1.5 million managed to reintegrate.

The figures from the IPE show that “the prospects for the recomposition of the middle class will not be favorable while the deterioration of business confidence persists, which does not allow the conditions to invest and generate quality jobs.”

The slow progress in the recovery of this sector would be linked to “the greater precariousness of employment”, which implies more informal employment and less adequate employment, something that could not be reduced during most of 2021.

The drop in real wages for the middle class reached its lowest point in 12 years in 2021, and at that stage there was an increase in the share of extraordinary sources of income such as withdrawals from private pension plans, which compensated nearly three quarters of the loss of resources due to the fall in wages.

But the IPE warned that the use of resources from private pension plans is “unsustainable”, because part of these funds have already run out and also increases the vulnerability of Peruvians in retirement.

Recomposing the middle class towards its pre-pandemic levels will be unfeasible until the necessary conditions are created for the economy to achieve greater dynamism in the coming years than has been anticipated, ”says the report.

Martin Spicer, director for Latin America and the Caribbean of the International Finance Corporation, said that inclusion is one of the solutions for recovery. “The biggest challenges for the region in 2022 emerge from the pandemic and the financial crisis caused by that pandemic, particularly in trying to resume growth and through an inclusive model that brings everyone back into the economy.”

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