Emerging Market Middle Class

will Continue to Expand


Over the course of The Great Recession, the middle class in emerging market nations continued to expand.  This is and will continue to take place, shifting the purchasing power of the global economy.  According to “Urban world: Cities and the rise of the urban class,” a recent report by McKinsey Global Institute of McKinsey & Co., the consulting firm, “One billion new people will enter the global consuming  class by 2025.”  To put that into perspective, that is more than three times the populace of the United States entering the “global consuming class” in a little more than a decade.
 
This is continuing unabated despite the recession in Europe and the sluggish economy in the United States.  While not growing at the double digit clip it did during the boom years, China’s gross domestic product expanded by 7.6 percent for the second quarter of 2012.  In India, the growth rate for the first three months of 2012 was 5.3 percent.
 
These are the stated growth rates for the economies as measured by the government.  In addition to that, the underground economy continues to expand around the globe.  This is an unregulated, untaxed marketplace that evades governing bodies of all sizes and locales.  Writing in Wired magazine in the piece, “Why Black Market Entrepreneurs Matter to the World Economy,”Robert Reuwirth puts the size of “System D,” as he calls it, to be an estimated at $10 trillion…50 percent larger than  the official economy of China and twice that of Japan.
 
Demand from emerging market consumers will continue to expand, both in System D and the official marketplace.  Demographics is destiny; and that is the reason why.  Citizens in emerging market countries are much younger.  In addition, there are not the social programs that drain tax dollars away as towards more unproductive ends at takes place in the more developed countries of the world.
 
As a result of public policies and programs more dedicated to developing economies that are based on exporting goods and services to meet global demand rather than local consumption, emerging market governments are in much better financial shape.  China has more than $3 trillion in foreign reserves, by far the most of any country in the world.  In addition, China has the highest savings rate in the world.  Other emerging market countries such as India and Russia are also in strong creditor positions, too.
 
From this, emerging market economies are able to continue growing even though demand from the United States and Europe is declining.  Jim Lowell, Editor of Fidelity Investor, stated that, “I want to stay invested in emerging markets where populations and consumers are growing, but the markets are selling off on eurozone fears.”  In China, as an example, consumer spending has increased by about one-third over the last five years.  This will develop the service sector more in the country, which will further expand the middle class.
 
As the consumer class is inexorably expanding in emerging market countries, companies in the developed world are focusing on this growth.  After an absence of sixty years, Coca-Cola (NYSE: KO) is re-entering Myanmar, the former socialist Burma.  Burger King (NYSE: BKW) just announced plans to open 1000 new restaurants in China.  Legendary financier Warren Buffett, head of Berkshire Hathaway (NYSE: BRK-A), traveled to India for the first time ever earlier this year to look for investing opportunities.
 
Financial columnist Jim Jubak considers the growth of the middle class in emerging market nations around the globe to be the most important investment trend of the decades ahead.  The expansion of the global consuming class eased the pain of The Great Recession for the United States and Europe.  As the middle class continues to develop in size and wealth in emerging market nations, more and more of the world’s companies will adapt their policies and products to benefit from this force of billions, from which all will benefit.