The worldwide economic picture may be full of uncertainties but one thing seems likely: the demand for goods and services in the developing world will grow at an unprecedented rate as the emerging middle class rapidly expands over the next couple of decades. Currently, 70% of the global population resides in the developing world, where demographic changes, growth in wealth and income and exports are helping to propel people into the middle class at an unparalleled rate.
The world is undergoing a seismic shift as developing countries become the engines driving global economic growth. Compared to the developed world, economic trends throughout emerging markets are on the upswing. Overall, the government credit profiles in the emerging world are improving and their populations are young and urbanized with growing amounts of disposable income and unmet consumer needs.
In contrast, the government credit profiles in the developed world are getting worse, the populations are aging, the consumer industries, including housing, are overdeveloped and the people in these countries are saving rather than spending. In the years ahead these demographic shifts will drive revenue growth in a range of industries, from consumer goods to banking to construction. Much of this growth will come from the largest developing countries, Brazil, Russia, India and China, where the middle class is expected to double in the next 10 years.
Worldwide the middle class is gaining 70 million new members annually, which will translate into two and a half billion emerging middle class consumers over the next 10 years.
Historic Perspective
Much of what is currently happening throughout emerging markets is reminiscent of Japan in the aftermath of World War II. After losing about 40% of its industrial base during the war, the country underwent an economic revolution in the 1950s. Investments poured in and Japan began producing everything from synthetic fibers to ships. People started moving to the cities for work and income levels soared.
With their newfound buying power, Japanese consumers gobbled up household goods. Between 1953 and 1955, sales of washing machines quadrupled, doubling again one year later. Demand for cars and televisions also exploded.
In China, we are seeing the same sort of exponential increase in demand for consumer goods as more of the population moves to urban centers. Currently, 47% of the Chinese population lives in cities and this figure is expected to grow to 63% by 2020. Since 1986, the average income of city dwellers has increased 15% annually, and much of this income is spent on consumer goods. This spending is supported by a wider availability of consumer credit–last year, credit card balances grew by 17%.
These spending trends are only expected to continue as the population gets younger and richer. By 2015, half of the population will be under the age of 35 while real wages are expected to increase to $5,900 per year from the current level of $3,500 per year.
Acceleration Principle
