#121 Growing Global Consumer Spend

The Business of Age

In 2025 global consumer spending will grow by $3.2Tn. Equivalent to adding the spend of Germany and Spain. Where will the growth come from?

A Five-Minute Read

According to the World Data Lab consumer spending will be $57.9 Tn this year. It will grow by $3.2 Tn, an accelerating trend. Where is this growth coming from?

They track expenditure globally. They define someone to be in the “consumer class” if they spend more than $12 per day. Only half of the world population are consumers on this definition. A third of spending growth comes from new consumers joining the class. Half of all the growth comes from the increased spending power of existing consumers. The balance comes from inflation and exchange rate changes. (The numbers are adjusted to allow for comparable purchasing power).

131m New Consumers in 2025

As the GDP/head of a country increases more and more people have the means to become consumers. It is therefore not surprising that 45m of those new consumers will be in India. China will grow its consumers by 30m and the rest of Asia by 26m. Africa is further behind in the process of “becoming rich”. Only 11m new consumers will come from it next year. Latin America can add 7m and the rest of the world 10m.

The scale of the growth in the consumer class in India is huge. By 2038 it will pass China in share of global consumer spend. By 2042 it will be bigger than Europe and by 2045 it will surpass the share of USA. With declining or static population growth these areas will not be able to compete.

These Newsletters have focused on the developed nations of the world. Unsurprisingly they do not feature as a major source of new consumers. World Data Lab publish a list of countries growing their consumer class by more than 1m this year. The USA is the only developed country featuring on it. Longevity should be increasing the number of older consumers. Immigration generates new consumers very rapidly. Migrants tend to be quickly employed and become consumers. The numbers are not big enough to register compared to India and China.

There is still a bias towards older and more affluent consumers. Those spending over $80 per day will contribute over half of the growth in spending. The “Over 50s” new consumers will contribute half of the increase in spend. In contrast, people under 25 years old are projected to account for only a quarter of this growth. The senior market (ages 65 and older) is projected to see the highest spending increase. It will have an annual growth rate exceeding 6%.

Getting Rich Before You Get Old

In a previous Newletter I quote from a recent McKinsey study. Its focus was how to maintain the GDP per head given the demographic headwinds. Whether that was more people working or each person working more hours per week. It also depended on increasing productivity. But what if you are an African Country. What if you do not just want to maintain the existing GDP per head? Growing affluence means growing GDP per head.

Historically such countries could rely on the “demographic dividend”. In any population transition there is a 20-30 year “golden spot”. Child mortality and fertility have fallen. There exists a large cohort of working people. The country has yet to start to age. The result is that there are fewer very young and old to support. The “dependency ratio” falls. There is then a positive spiral in the economics of families and countries. Female employment grows and families can start to save. This provides capital for investment by governments and companies. With appropriate Government policies this generates a positive spiral of affluence. Investments in education, particularly for women, drive employment and productivity. Governments ensure that there is employment available for that better educated young workforce. More citizens can become “consumers”. The country becomes “rich before it gets old”. It provides the resources needed to meet the future costs of an ageing population.

The size of the “demographic dividend” depends upon the speed of the fertility decline. If it goes down quickly there is a larger bulge or “baby boom generation” to support a smaller dependent population. South Korea, for example, went through a rapid fertility decline. It was able to harness all of the benefits of the dividend. Government put all the necessary building blocks in place.

A slower decline can lead to the benefits being cancelled out. Development economists are therefore concerned. There is an apparent slow down in the rate of decline in fertility in several African countries. They are also waiting for the start of the decline of fertility in others.

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