By 2030, two-thirds of the global middle class will be residents of the Asia-Pacific region, while Europe’s share of this population will have dropped by 14% according to Ernst & Young’s Hitting the Sweet Spot report.
The report, produced in collaboration with the Ernst &Young /SKOLKOVO Institute for Emerging Markets Studies, defines the middle class as people earning between US$10 and US$100 per day. At this level, consumers start having the kind of disposable incomes that will allow them to buy the cars, televisions and other goods. People in this income bracket can be considered a “global middle class” – middle class by the standards of any country.
In Asia alone, 525 million people can already count themselves as middle class – more than the total population of the European Union.
Over the next two decades, it is estimated that the middle class will expand by another three billion, coming almost exclusively from the emerging world.
A significant proportion of the new Asian middle classes are also expected to be at the upper end of the income bracket and boast impressive spending power.
“By 2030, as more and more people enter the middle class it is hoped that this growing cohort of consumers with new money and new demands can help to keep the floundering global economy afloat,” says Alexis Karklins Marchay, co-Leader of Ernst & Young’s Emerging Markets Center.
Chinese middle class expected to reach one billion by 2030
China and India will become the powerhouses of middle class consumerism over the next two decades although other rapid-growth markets such as Mexico and Brazil will also contribute. Nevertheless, the Chinese and Indian contributions will be substantial.
Today, China has around 150 million people who are considered to be part of the global middle class within the next decade this expected to have reached 500 million. By 2030 around one billion people in China could be middle class – as much as 70% of its projected population.
India’s global middle class, meanwhile, is much smaller at around 50 million people, or 5% of the population. EY estimates that this group will grow steadily over the next decade, reaching 200 million by 2020. After this, India’s middle class growth is really expected to accelerate, reaching 475 million people by 2030 and adding more than the Chinese to the global middle class worldwide after 2027.
A changing world
By 2030, there will be a much broader distribution of incomes around the world. While millions have been brought out of poverty over the last few decades it is only recently that we have begun to see the impact of the rising middle classes across the emerging markets. However, the report suggests that despite the growth of spending in emerging markets far outstripping developed market spending in recent years, there is still some way to go before contributions reach parity.
Although emerging markets consumption is not sufficient to cause a return to pre-2008 global growth rates, it may be enough to prevent a return to global recession in the next few years (providing that consumption in developed markets does not decline).
Alexis comments, “The emergence of a new middle class, with spending power to match developed nations, will offer tremendous opportunities to businesses. These opportunities can arise very quickly, and multinationals need to be ready to respond.
“Business opportunities will not be confined to consumer goods: the emergence of a wealthy middle class will also open up the markets for financial services or the health sector, for instance, in new territories.”