21 August 2019
India's middle class will account for the bulk of global consumption in 2030, according the Brookings Institution. Photo: Bloomberg
India's middle class will account for the bulk of global consumption in 2030, according the Brookings Institution. Photo: Bloomberg

How Asian consumers will shift the center of gravity from Europe

It is maybe bad enough to confess that every Saturday I curl up with the House & Home property supplement of the Weekend FT for a voyeuristic glimpse inside the genteel lives of the global rich and uber rich.

So imagine my embarrassment having to confess that I have to credit a major House & Home article two weeks ago for inspiring a rare eureka moment that I need to share.

There on the front page of House & Home was one of those multi-coloured data-strewn world maps that at first send your head into a spin.

Once I got through the initial shock, I realized I was looking at something really quite significant.

It was based on research from the Brookings Institution in the United States and was all about where the world’s middle class consumers will be by 2030.

But before I allowed myself to become excited, a little alarm bell went off: how are they defining “middle class”?

I have been told — preposterously and breathlessly — about India’s 400 million middle class consumers only to discover that these “middle class” have electricity, running water, a bicycle and perhaps a refrigerator, hardly in the category of a middle-class Parisian with a poodle and a Prada bag, drinking anis at a corner café on the Champs Elysees.

But this research seemed reasonable: “middle class” meant someone spending between US$10 and US$100 a day in purchasing power parity (PPP) terms.

The world of PPP is a weird one, but let’s not be too pernickety. This definition means a person can afford a Starbucks, has more than one pair of shoes, has an iPhone and a computer at home.

So why did this Brookings research make my hair stand on end?

First, where the world’s middle class live: in 2009, 664 million of them were in Europe and 338 million were in North America  – 54 percent of a world total of 1.85 billion middle class. The Asia-Pacific, with 525 million, accounted for 28 percent.

But now look at the world they predict in 2030: Europe’s middle class will grow slightly to 680 million while in North America the middle class population will shrink slightly to 322 million.

But by then, Asia Pacific will account for 3.23 billion middle class consumers. From 28 percent of the world’s middle class consumers today, Asia Pacific will in 2030 account for 66 percent of a global total of 4.88 billion middle class.

Europe and the US combined will shrink from 54 percent today to account for just 21 percent.

If that was not shock enough in terms of imagining the shift in global consumer gravity between now and 2030. After all, just 15 years away, their data on middle class consumption by 2030 had me reeling.

Middle class consumption in Germany will be US$1.3 trillion and in France US$1.1 trillion.

The US, at US$4 trillion will still be significantly larger but look at Asia.

Middle class consumption in Japan will be a predictable US$2.3 trillion, Indonesia US$2.5 trillion, China US$10 trillion and India US$12.8 trillion.

In short, whereas today Europe and North America dominate world middle class consumption, accounting for 64 percent of a total of US$21.3 trillion (a dominance that has stayed steady for most of the past 200 years), by 2030, that share will have fallen to 30 percent of a total of nearly US$56 trillion.

Asia-Pacific, driven by consumers in India and China, will have risen from 23 percent of consumption today to 59 percent.

If these predictions are anywhere near accurate, and if I were the chief executive of a manufacturer based in Frankfurt or Birmingham or Dallas, the message is clear: build an Asian presence as soon as possible.

I had a surreal feeling absorbing all this data because India’s economy seems as quagmired as ever and because we are still obsessively anxious about faltering growth in the Chinese economy and the dramatic impact of the anti-corruption campaign on luxury spending in the mainland.

As China’s leaders try to reduce reliance on exports for economic growth, their efforts in building domestic consumption seems to be making little progress.

Household consumption as a proportion of gross domestic product has fallen since 2009 from 38 percent to 36 percent.

Of course, Brookings could be horribly wrong. But if not, then somewhere soon, these two seemingly divergent trends will converge.

My own bet is that they are more or less right. In which case, I feel much more comfortable sitting in Hong Kong than I would sitting with a glass of anis on the Champs Elysees.

The shape of the world economy is changing radically. And much more rapidly than we realise.

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Executive director of the Hong Kong APEC Trade Policy Group

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