Middle class remains the biggest force
Credit to Author: Peter Lundgreen| Date: Fri, 24 Jan 2020 16:19:43 +0000
The most important macroeconomic megatrend that I have worked with since years, I call the “middle class beats high-tech.” The thinking behind this phrase is that high-tech companies are impressive, enormous, disruptive etc., though in global importance, they still don’t beat the macroeconomic importance of the growth of the global middle class.
The growth in the global middle class has lifted hundreds of millions of people out of poverty, and the same will happen for hundreds of million more in the coming years. In many ways, this is a fantastic story, though in front of investors, this wave means that consumers move from basic spending toward purchasing consumer goods that don’t belong to the high-end products. Very often, I have experienced that the tech story sounds more fancy, and the investors rush toward that direction. But my primary scenario is that the explosive growth in the global middle class will continue. I expect the explosion to remain so huge that it will continue throughout the “Roaring Twenties,” and therefore, is also one of the most important megatrends for the global economy, investors and corporations.
When it comes to advisory about strategic opportunities and developments, then this megatrend is a development that I give some weight. For the same reason, it’s a trend that I revisit to check if it remains on track and if there are growing treats.
As a measure, I look at the expected number of people that will globally belong to the middle class in 2030, and that number tends to grow every half year. Now, the expectation is that 5.3 billion people, or maybe even more, will belong to the middle class in 2030. The expression “middle class” is domestic, it includes working people who enter the lower middle-income class in the country where they live, meaning a lower middle income is for example, not the same in China as in India. This hasn’t changed, but the speed of how the middle class expands continues to surprise. An average of forecasts back from 2013 pointed out that 5 billion people would belong to the middle class in 2030. But the forecasts just before the global financial crises surprisingly did not foresee this explosive development at all.
To describe the magnitude of the development, it’s pretty interesting to include forecast from the period before the financial crisis, where a fine institution like the World Bank studied the outlook for 2030 back in 2007. Back at that time, it was a forecast 25 years ahead, as the data would have been one or two years old, and such a forecast is difficult to conduct. But the forecast was a global middle class growing to 1.2 billion people, meaning that in 2030, between 16 to 20 percent of the global population would belong to the global middle class. In 2018, 50 percent of the population on Earth managed to belong to the global middle class. In 2018, that was 3.8 billion people, and around 4 billion this year, but based on a combination of the latest research, another 1.3 billion people belong in that income category in just 10 years — it’s why I describe it as an ongoing explosion.
One can ask, can this continue at all? In these times, many probably have the climate, carbon dioxide emissions, and global warming in mind. This is very understandable, and even back in 2007, the World Bank pointed at the challenge for climate with an expected global middle-class population of 1.2 billion people in 2030.
Some United Nations-anchored taxes could, of course, make consumption so expensive, that it limits the global middle class to consume less than desired, though I see it a difficult solution, and even more difficult to introduce national limitations. A global economic crisis during the 2020s will of course delay the expansion of the global middle class, though just a delay and nothing more.
This is why I expect the middle-class explosion to continue as a very strong megatrend, even in the coming years. All forecasters agree very much about where the growth will take place, and that is in Asia, with about 90 percent of the total growth, which means that in the next decade, the middle-income class population in Asia will grow by almost 1.2 billion people. As any other household with growing purchasing power, there will be an ongoing demand for low cost microwaves, refrigerators, cars, etc., that all will be manufactured, traded and transported in Asia — it is the strongest megatrend that I can point at, and I see no reason to change this view so far.
Peter Lundgreen is the founding chief executive officer of Lundgreen’s Capital. He is a professional investment advisor with over 30 years of experience and a power entrepreneur in investment and finance. He is an international columnist and speaker on topics about the global financial markets.