by Consumers in emerging economies can be forgiven for having a less than rosy outlook these days. Currency weakness, market volatility, and in some countries, political risk, drove declines in consumer sentiment throughout much of the developing world in 2015, according to the Credit Suisse Research Institute’s 2016 Emerging Consumer Survey. In the long-term, however, consumption in the emerging world is still a growth story – one driven by an emerging middle class and optimistic young consumers whose tastes will shape consumption patterns for years to come. Over the last two years, 90 million households in the nine countries the CSRI surveyed in late 2015 have joined the ranks of the middle class, defined as having a monthly income equivalent between ,000 and ,000. With 414 million households in the survey region still earning less than ,000 a month, the middle class has plenty of room to expand even further. The massive migration into middle-income territory could eventually give emerging market consumers buying power that rivals that of consumers in developed countries. In 2010, annual consumption in emerging markets was trillion — less than a third of the world’s total consumption. By 2025, however, emerging market consumption is expected to grow to trillion, or nearly half the global total, according to projections by the McKinsey Global Institute.
Topics:
Alice Gomstyn considers the following as important: Credit Suisse Research Institute, Emerging Consumer Survey, emerging consumers, emerging markets, World Affairs: Features
This could be interesting, too:
Joseph Y. Calhoun writes Weekly Market Pulse: The Real Reason The Fed Should Pause
Joseph Y. Calhoun writes Weekly Market Pulse: The Dog That Didn’t Bark
Joseph Y. Calhoun writes Weekly Market Pulse: Things That Need To Happen
Joseph Y. Calhoun writes Weekly Market Pulse: Oil Shock
Consumers in emerging economies can be forgiven for having a less than rosy outlook these days. Currency weakness, market volatility, and in some countries, political risk, drove declines in consumer sentiment throughout much of the developing world in 2015, according to the Credit Suisse Research Institute’s 2016 Emerging Consumer Survey. In the long-term, however, consumption in the emerging world is still a growth story – one driven by an emerging middle class and optimistic young consumers whose tastes will shape consumption patterns for years to come.
Over the last two years, 90 million households in the nine countries the CSRI surveyed in late 2015 have joined the ranks of the middle class, defined as having a monthly income equivalent between $1,000 and $2,000. With 414 million households in the survey region still earning less than $1,000 a month, the middle class has plenty of room to expand even further.
The massive migration into middle-income territory could eventually give emerging market consumers buying power that rivals that of consumers in developed countries. In 2010, annual consumption in emerging markets was $12 trillion — less than a third of the world’s total consumption. By 2025, however, emerging market consumption is expected to grow to $30 trillion, or nearly half the global total, according to projections by the McKinsey Global Institute.
The patterns of emerging market consumption rest largely on the preferences of younger consumers, who are more upwardly mobile than their elders. In nearly every country, incomes for those between the ages of 18 and 29 grew more than in any other age bracket in 2015 – or at least declined less. (India and Indonesia are notable exceptions.) Young people are also, not surprisingly, more inclined to spend money, with those 29 and under reporting higher spending intentions than older consumers in most product categories included in the survey. In the hard-hit economies of Russia and Brazil, young people’s spending intentions declined compared to 2014, but they still intended to spend more than older people.
Across most markets, the under-29 crowd showed a strong preference for lifestyle products, with spending on fashion, travel and perfume topping their wish lists. Spending momentum – a reported intention to spend more in 2016 than the year before – rose most in the fashion, perfume, cosmetics, and sports shoes categories. Young consumers are particularly interested in purchases aligned with a healthy lifestyle. Per capita spending on sportswear in India, China, Russia and Brazil, for example, is growing faster than in developed markets.
Some facets of emerging market consumption growth extend across age groups, however, including e-commerce. Nearly 90 percent of consumers aged 18 to 29 in the Credit Suisse survey region have Internet access, but older consumers are catching up. More than 60 percent of those aged 46 to 55 reported having Internet access in 2015, up from less than 40 percent in 2011. Among seniors, more than two in five surfed the web in 2015, up from about a quarter in 2011. In six of the nine surveyed countries, the percentage of survey respondents saying they planned to spend more money shopping online was higher in 2015 than in the two years prior.
Credit Suisse economists forecast that consumption will rise in some emerging market economies this year, buoyed by a combination of cyclical trends and government policy. Recent or expected interest rate cuts will likely support consumption in India, Indonesia, and Vietnam, while lower inflation should increase consumer spending in all three countries, plus the Philippines. Tightening labor markets are expected to increase consumer appetites in the Philippines, Poland, and Hungary, and government employee wage hikes should do the same in the Philippines and India.
When it comes to consumer sentiment, the CSRI believes currency strength is the most important variable to watch in 2016. “Observers who knew nothing a year ago other than the likely direction of currencies in 2015 would have had a good idea of the relative fortunes of emerging market consumers for the year ahead,” the CSRI writes. There is reason for optimism on the currency front. On a purchasing-power parity basis, many emerging market currencies look undervalued, particularly the Brazilian real, Russian ruble, and South African rand.