World Reimagined: The Rise of the Global Middle Class

When most think of the middle-class, they tend to reflect on the post-World War 2 boom that by some accounts created an economic Golden era with American consumption being a major driver of the world economy. By 2015, however, after representing the majority of Americans for more than four decades, the size of the U.S. middle-class was eclipsed by the combined upper and lower class. Looking globally, the middle-class is expected to explode over the next decade, and the geographic driver that is shaping the growth of that consumer spending powerhouse is forcing companies to reposition their businesses.

According to the 2021 Credit Suisse (CS) Global Wealth Report, the global middle-class, defined as adults whose assets amount to between $10,000 to $100,000, more than tripled to 1.7 billion in mid-2020 from just 507 million in 2000. As we’ve come to expect, how something is defined can be very different depending on who you ask. Case in point, the Organization for Economic Co-operation and Development (OECD) defines the middle-class differently than Credit Suisse and based on its methodology, there were 3.6 billion in the middle-class in 2018, up from 2 billion in 2020.

Despite the definitional discrepancies, one area of common ground is that the size of the middle-class will continue to grow and do so considerably over the current decade. Some forecasts put the global middle-class at 5.3 billion people by 2030 and leading the charge in the coming middle-class explosion will be China and India. What this means is that companies that once relied upon the U.S. and Europe for their bread and butter business will be geographically pivoting to meet the growing needs of this new middle-class.

Why Focus on the Middle-Class?

That is an excellent question and the answer is summed up rather succinctly by a white paper titled “The Growth & Importance of Middle-Class Consumers in Emerging Markets” by Donmaz, Sayil, Havayollari, and Bölümü:

“The growing middle class points to the enhancement of life standards and an increase in purchasing power by consumers. Other factors by which middle-class status can be defined include educational and professional achievement, political attitudes and participation, lifestyles, cultural values, or simply self-identification. In a market-driven economy, the middle-class consumer segment is considered the backbone of both the market and the economy.”

What stands the middle-class apart from both the poor and rich is that while those in this group have purchasing power, they tend to make economically-based choices that span a combination of material consumption and enjoyment. They also tend to favor private property, saving for the future, and maximizing personal choices.

Interestingly enough, the middle-class consumption basket in India doesn’t look all that different from ones found in the U.S. or China. Much has been written about the trade-up in diet as disposable income rises, but in addition to food, clothes, housing, and transportation, this basket includes entertainment, vacations and other affordable luxuries.

China and India

According to the World Bank, by 2030, over 70% of China’s population could be middle class, consuming nearly $10 trillion in goods and services, but India could be the world’s largest middle class consumer market, surpassing both China and the U.S. with its sheer size. In aggregate, China and India will represent roughly two-thirds of the global middle-class population and 59% of middle-class consumption that is expected to tally $64 trillion by 2030. Again, some context, middle-class spending in 2015 was roughly $35 trillion, and was concentrated in the U.S. and Europe. What the math tells us is that by 2030, the middle-class in India and China together will be spending more than the combined middle-class spending in Europe and the US in 2015.

Let’s let that sink in.

For those who know their history, this shouldn’t be much of a shock. For much of the past 2,000 years China and India combined accounted for more than half of global GDP. It wasn’t until the very late 1800s that the economy of the United States became a major player.

One other point that needs to be mentioned: Over the coming decade, one of the biggest changes in India will be the coming of age of nearly 700 million people born between the late 1980s to the 2000s or, as we have come to know them, Millennials. As the World Economic Forum notes, these richer, younger, more confident and more connected Millennial Indian consumers “will pave the way for tremendous innovation in products, services and business models.”

By comparison, China will have its largest share of the middle class, roughly 30%, in the 45-65 age group and the average age of a Chinese middle-class citizen will be 41.9 years of age, almost 10 years higher than the average age of a middle-class Indian citizen. Those age differences will influence the different kinds of consumption baskets to be had in India and China over the coming years.

In response, we’ve seen a growing number of companies position their businesses for what’s to come, joining the ranks of McDonald’s (MCD), Yum! China (YUMC), and Starbucks (SBUX). According to Netflix (NFLX), India was the fastest investment it has ever made, and the largest investment made in local original programming. China and India are target growth markets for Walmart (WMT). Proctor & Gamble (PG) reported robust organic sales, even during the pandemic, from the emerging markets, led by growth in its branded home, fabric and body care products. Apple (AAPL) has been bullish on smartphone prospects in India and has shifted some of its supply chain to India ahead of opening its retail store presence in the coming quarters.

As these geographies become a greater portion of a company’s business mix, investors should expect to hear more about the positive as well as negative impacts of foreign exchange rates as well as the geographic impact on taxes when a company discusses its quarterly results. This means when deciding on whether to invest in a company, an investor will need to understand the prospect’s geographic business mix, monitor currency markets and the political landscape as well, particularly as India, China and other emerging markets become a greater portion of its revenue and profit stream.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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