One of the most significant effects of the recent economic crisis has been the reduced role of Western consumers as drivers of growth in global consumption.
Today, U.S. consumption makes up 17 percent of global GDP, and since 2000, consumers have accounted for 74 percent, or $3.5 trillion, of U.S. GDP growth. By 2020, U.S. consumers are expected to account for 35 percent of global discretionary spending, compared with 40 percent today, and China will account for 22 percent, up from just 9 percent today. The economic downturn hurt both the willingness and the ability of many consumers in the developed economies to spend. This stands in strong contrast to the emerging markets, where attitudes toward spending are much more buoyant, reflecting consumers’ outlook on the economy.
Developed markets will continue to play a significant role in the world economy because of their absolute size. But over the next few years, growth in consumption will primarily occur in the emerging markets, such as China and India, where it is expected to exceed 50 percent in five years. (See Exhibit 3.)
Redrawing the Global Map of Consumption :
Developed-market economies may be performing a bit better than they were in 2009, but the economic hangover continues to linger, and shoppers are behaving accordingly. Without easy access to credit and with depressed property values bringing a diminished sense of wealth, consumers in the U.S., Spain, and the U.K. are reluctant to spend as they once did. Fully 44 percent of consumers in the U.S. said that they plan to reduce their spending over the coming year. That’s down only slightly from the 46 percent of consumers who made the same claim back in 2010.
Many economists anticipate that, because of the recession, household debt levels will retreat from the precipitous brink that they reached in some countries. U.S. households have indeed been slowly decreasing their debt, with levels now at “only” 146 percent of disposable income, down from a peak of 162 percent in 2007. And credit growth has likewise slowed in the U.K. and in some European countries. Still, household de-leveraging has yet to happen in many developed regions, such as Canada, Australia, and the Nordic countries, where debt levels remain at all-time highs. A decrease in net new debt over the next few years could put further downward pressure on consumer spending.
As the engine of spending growth in the developed world decelerates, the developing world (especially China and India) is taking up an increasing portion of the slack. China is already the world’s largest market for automobiles, and it is poised to rapidly take a leading position in many other categories. Thirty-six percent of Chinese survey participants said they expect to spend more or much more on discretionary items in the next 12 months, compared with only 8 percent in the EU and 11 percent in the U.S.
Consumer spending in other emerging markets has also remained comparatively robust throughout the downturn and is expected to continue growing more rapidly than in the developed world. These developing economies, showing strong growth and positive consumer sentiment, are ripe to lead the growth in global consumption over the near term. (See Exhibit 4.) However, many of them are also grappling with inflation, which is eroding consumers’ spending power and may somewhat distort the picture of real spending growth.
Whether consumers are trading up, trading down, or looking to find a compromise in the middle, the recovery is clearly taking different paths and occurring at different speeds determined, in part, by differing starting points in consumer sentiment around the world—thus underscoring the importance of de-averaging consumer segments. For a more detailed discussion of the multi-speed recovery as it affects specific markets.
A supplement to this report that looks at the 21 markets we surveyed in terms of FOUR distinct groups, described as follows:
1. Getting Brighter. In these countries, which include Brazil, China, and India, growth rates are relatively high and consumer sentiment is buoyant.
2. Modest Growth. In Australia, Canada, Russia, and most of the countries of Europe, expectations of growth are lower, though consumer sentiment is rebounding.
3. Question Marks. Here, economic and consumer signals are mixed, and there are significant questions about future growth trajectories; these countries include Italy, Japan, Mexico, and the U.S.
4. Still Struggling. In Greece and Spain, no return to growth or consumer optimism can be detected so far.
Approximately 125 million households in emerging-market cities will enter the middle class between 2010 and 2015, an increase of more than 70 %. However, companies should not assume that these new consumers will spend in the same ways or have the same aspirations as middle-class shoppers in the developed world. Their starting points in terms of disposable income, constraints on their daily lives, and spending priorities are often very different. Consumers in China, for example, are more likely to trade up in general and significantly more likely to trade up in specific categories, such as consumer electronics, than middle-class shoppers in developed economies. (See Exhibit 5.) And in India, middle-class consumers are twice as likely as consumers in the U.S. and the EU to say that they increasingly value education and see it as an area for disproportional spending. Addressing these differences will require insight into the values and needs of specific segments of consumers.