The shadow hung over Davos brings together world leaders in business and politics in a Swiss Alpine resort last week: discussions were dominated by the war in Ukraine, rising inflation and disruption to supply chains. The optimism of last year’s pre-war and pre-war conferences has given way to a stabilization of business and the international order in the short term. Right, short-term economic growth forecasts have been revised down, but not as much as popular opinion might suggest. In the long term, faster growth is expected, especially in emerging economies and Asia.
October 2021 World Data Lab (WDL) projects that in 2022 the world will add 132 million new entrants to the consumer class (defined as everyone who spends $12 a day at 2017 purchasing power parity (PPP). The costs of the war in Ukraine are enormous. The war has led to trade disruptions and rising energy prices, adding to the burden facing the global consumer. Previous WDL forecasts have been revised down resulting in a loss of 22 million new global entrants in the consumer class in 2022. The most significant damage to consumers is caused directly by war. This year alone, Ukraine will lose at least 12 million consumers, and Russia another 5 million. China’s COVID policy has resulted in the next most significant revision, with a loss of 3 million consumers compared to previous forecasts.
The war and the resulting economic consequences almost universally slowed economic growth, and people became poorer than pre-war scenarios suggested. But despite the slowdown in China’s economy, this is largely not the case in Asia: the continent’s medium-term growth has been revised upwards since October, mainly due to a stronger-than-expected economic recovery of the Association of Southeast Asian Nations after the pandemic. and the base effect of the new India data. Contrary to popular belief, the global middle class in Asia has rebounded strongly from the shock caused by COVID in 2020. It continues to grow and already more than before the pandemic. Most countries are richer than in 2021 thanks to the ongoing recovery from the COVID-19 pandemic. We now expect emerging Asia’s share of the global economy to grow faster than we anticipated in October 2021.
Asia’s post-COVID recovery is part of a tectonic shift that began at the turn of the century. We can distinguish three different periods of the rise of the consumer class:
- Before 2000 the global consumer class was predominantly western (with related offshoots) with a total population of 1.7 billion. In 1980, more than 70 percent of the consumer class lived in countries of the Organization for Economic Co-operation and Development (OECD).
- Until 2020 a decisive shift has taken place. East Asia, especially China, has fully entered the global middle class. As a result The global consumer class has grown to nearly 4 billion. while Asia’s share of the global consumer class has reached 50 percent and the OECD’s share has halved from 80 percent to 40 percent.
- This decade will be the turn of South Asia, and we will see strong middle class growth in India, Pakistan and Bangladesh. By 2030, the subregion will add 40 percent of emerging middle-class consumers. By 2030, there will be 1 billion new members in the consumer class (out of 5 billion worldwide).
Asia has been the driving force behind the growth of the middle class since 2000, and this trend will continue throughout this decade. The continent now hosts the world’s largest consumer market, both in terms of population and spending (Figure 1).
Figure 1. The consumer class is shifting east: the next decade will be
Source: World Data Lab projections.
Asia will face another tipping point in 2024 when, according to WDL forecastsMore than half of Asians will be ‘middle class’ (spending $12-120/day PPP) or ‘rich’ (spending more than $120/day). For the first time in the history of the Asian continent, the consumer class will outnumber the vulnerable and poor (see Chart 2).
Figure 2: The tipping point for Asian consumers will come in 2024
Source: World Data Lab projections.
However, the consumer class profile in Asia differs from the Western consumer in two important ways:
- The lower middle class dominates. An individual in this category is an “initial consumer” who purchases FMCG and durable goods for the first time, such as a refrigerator or motorcycle.
- While these entry-level consumers spend very little, their numbers are so large that they will be the driving force behind Asia’s growth this decade. Asia’s lower middle class ($12-$40 a day) is now about 1.7 billion people, making up two-thirds of the world’s population in this segment. In contrast, Asia represents only 40 percent of the wealthier segments of the middle class ($40-$120 a day); in the upper class ($120+/day), Asia accounts for only 14 percent (see Table 1).
Table 1: Asia is starting to dominate, especially among entry-level consumers
Source: World Data Lab forecasts.
AT facticitythe late Hans Rosling wrote: “It is easy to be aware of all the bad things going on in the world. It’s harder to know about the good things: the billions of improvements that are never reported. Don’t misunderstand me, I’m not talking about some trivial positive news to supposedly balance the negative. I’m talking about fundamental improvements that are changing the world but are too slow, too fragmented, or too small one after the other to ever qualify as news. I’m talking about the secret, silent miracle of human progress.” Many of the recent developments have reinforced the rapid growth of the Asian middle class. Despite China’s COVID-19 restrictions, a bright horizon is opening up for the East. The next decade will slowly but surely move more people out of vulnerability and into the middle class. Consumer spending will increase with this transition, and eventually more than half of all money spent will go to Asians. Inflation is a risk, especially if interest rates rise and the economy slows down. However, it is important to understand that some of these fundamental demographic and economic factors have reshaped the Asian consumer market, and these long-term factors are still at work today. In these turbulent times, it’s also important to look at trendlines and not just headlines.