Current Headwinds Aside, Emerging Market Consumption Boom To Persist

In our latest Global Themes feature, published in Business Monitor Online, we discuss global consumption patterns.

  • Over the coming decade, we expect emerging markets to increase their proportion of global consumption from 29% to 41%. This is a substantial shift in global consumption patterns, considering that emerging markets made up a mere 7% of global consumption as recently as 2000.
  • In the next year or two though, emerging market consumption is likely to experience headwinds. Currency weakness will weigh on the purchasing power of households in several key countries, including Russia, Turkey, and Brazil.
  • While household consumption in the world's largest market, the US, has recovered to pre-crisis levels, it is still significantly below the long-term trend. For the eurozone, a recovery is nowhere in sight at this stage.

We are forecasting aggregate global consumption growth of 2.7% in 2014 and 3.0% in 2015, which would mark a comeback of sorts following average annual growth of 2.4% between 2011 and 2013. With developed states making up around 71% of global consumption (weighted by our US$ nominal-weighted GDP series), it is no wonder that the biggest reason for the acceleration in growth is an improvement in the fortunes of households in the developed world, with consumption growth doubling from 0.4% to 0.8% from 2013 to 2014, and moving higher again to 1.1% in 2015. Over the coming decade, though, emerging markets will continue to have the upper hand in growth by a substantial margin, with consumption rising by 5.6% annually on average in real terms, versus a mere 1.3% in the developed world.

With such a large growth differential, emerging markets will go from representing 29% of global consumption in 2014 to 41% by the end of our ten-year forecast period to 2023. China's share of consumption will rise to around 13% from 9.0%, while the Middle East and Africa will see the largest percentage point gain, from 6.5% to 10.3%. Although developed markets will retain their dominance, North America's share (largely consisting of the US) will decline from 33% to 27%, while developed Europe will decline from 24% to 19%.

This may yet prove optimistic for developed Europe, at least. Consumption in the eurozone and the US has been diverging since the global economy bottomed in 2009. US real retail sales have come all the way back to 2007 levels, while the eurozone, weighed down by a difficult economic adjustment in the periphery, is back to 2003/04 levels, implying a lost decade for consumption.

Our full feature on global consumption, with analysis on Latin America, Emerging Europe, the Middle East, Africa, and Asia, is available to subscribers at Business Monitor Online.