Asia’s tipping point in the consumer class

Last week’s call for world leaders in business and politics at the Swiss Alpine resort casts a shadow over Davos: Ukraine’s war, rising inflation and supply chain disruptions have dominated the discussion. The optimism of last year’s pre-Covid and pre-war conferences has paved the way for stabilizing trade and the international system in the short term. Indeed, short-term economic growth forecasts have been revised downwards, but not as much as popular sentiment would indicate. In the long run, rapid growth is expected, especially in emerging economies and Asia.

In October 2021, World Data Lab (WDL) estimated that the world would add 132 million new entrants to the consumer class by 2022 (2022 defined per capita purchasing power parity (PPP) as spending 12 12 per day in 2017). However, beyond the amount of human suffering, the economic cost of the war in Ukraine is profound. The war has disrupted trade and pushed up energy prices, all of which have added to the burden faced by global consumers. The previous WDL forecast has been revised, resulting in a loss of 22 million new global entrants to the consumer class in 2022. The most significant loss to consumers comes directly from the war. Ukraine alone will lose at least 12 million consumers this year, while Russia will lose another 5 million. China’s zero-quad policy has resulted in the next most significant correction, losing 3 million customers from the previous forecast.

The war and its aftermath have slowed growth almost everywhere, where people were poorer than before the war. But despite China’s slowing economy, this is not the case in Asia for the most part: medium-term growth on the continent has revised upwards since October, largely due to stronger-than-expected recovery in the Southeast Asian economies. Base effect from New India data. Contrary to commonly held wisdom, the global middle class in Asia is recovering strongly after the Kovid shock in 2020. It is constantly growing and the epidemic is already bigger than ever. Most countries are richer than in 2021 as post-Covid rebound continues. We now expect that emerging Asia’s global economy will expand faster than we thought in October 2021.

The post-Kovid recovery of Asia is part of a tectonic change that began at the turn of the century. We can define three distinct periods of consumer class emergence:

  • Until 2000, With a total population of 1.7 billion, the global consumer class was predominantly Western (including the combined off-shoots). In 1980, more than 70 percent of the consumer class was in the Organization for Economic Co-operation and Development (OECD) countries.
  • Until 2020, An important change has taken place. East Asia, China, in particular, has entered the global middle class in full force. As a result, the global consumer segment has grown to nearly 4 billion, with Asia’s share of the global consumer segment reaching 50 percent and OECD’s share halving from 80 percent to 40 percent.
  • This decade will be the turn of South Asia, And we will see a strong rise of the middle class in India, Pakistan and Bangladesh. By 2030, the sub-region will add 40 percent of new middle-class consumers. By 2030, there will be 1 billion new entrants to the consumer class (out of 5 billion worldwide).

Asia has been the driving force behind middle-class growth since 2000, and this trend will continue throughout this decade. The continent is now home to the world’s largest consumer market in terms of both housing and people (Figure 1).

Figure 1. The consumer class is shifting to the East: The next decade will be South Asia

Figure 1. The consumer class is shifting to the East: The next decade will be South Asia

Source: World Data Lab Guess

Asia will face another watershed moment in 2024, when – according to WDL estimates – more than half of Asians will be “middle class” (spending -1 12-120 a day in PPPs, 2017) or “rich” (spending more than $ 120 / day). For the first time in the history of the Asian continent, the consumer class will be weaker and more than the poor (see Figure 2).

Figure 2. Asia’s consumer tipping point will occur in 2024

Figure 2. Asia's consumer tipping point will occur in 2024

Source: World Data Lab Guess

However, Asian consumer class profiles differ from Western consumers in two important ways:

  • The predominance of the lower-middle class. One person in this category is the “intruder consumer” who, for the first time, purchases fast-moving consumer goods and durable items such as refrigerators or motorcycles.
  • Although these entry-level consumers spend very little, their numbers are so high that they will be the drivers of Asia’s growth this decade. Asia’s lower-middle class ($ 12-40 / day) now has about 1.7 billion people, representing two-thirds of the world’s population in this segment. In contrast, Asia represents 40 percent of the more affluent segment of the middle class ($ 40-120 / day); In the upper class ($ 120 + / day), Asia shares only 14 percent (see Table 1).

Table 1. Asia begins to dominate, especially among entry-level consumers

Table 1: Asia begins to dominate, especially among entry-level consumers

Source: World Data Lab Guess

In factfulness, the late Hans Rosling writes: “It’s easy to be aware of all the bad things that are happening in the world. Good things are even harder to know: billions of improvements that are never reported. Don’t get me wrong, I’m not talking about some trivial positive news so that a negative balance is maintained. I am talking about fundamental improvements that qualify as world-changing but too slow, too fragmented or too small one news after another. I’m talking about the secret, silent miracle of human progress. “ Many of the recent developments have strengthened the rapid rise of the Asian middle class. Despite China’s cowardly lockdown, there is a bright horizon for the East. The next decade will slowly but surely move more people out of their weakness and into the middle class. With this change, consumer spending will increase and, in the end, more than half of the money spent will be Asian. Inflation is a risk, especially if interest rates rise and the economy slows. However, it is important to realize that some of these fundamental demographic and economic forces are reshaping the Asian consumer market, and these long-term forces are still at play today. In these turbulent times, it is important to pay attention not only to the headlines but also to the trendlines

For questions about the underlying data model, please contact Juan Caballero-Rainer ([email protected])

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