Asia set for consumer spending boom

20 August 2010

HONG KONG: Consumer spending is set to explode in Asia over the next two decades as the region's middle class increases considerably in size.

The Asian Development Bank, the multinational financial institution, has published a study estimating that shoppers in the region were responsible for a collective outlay of $4.3tn (€3.4tn; £2.8tn) during 2008.

This figure is due to reach $32tn by 2030, meaning Asia's proportion of worldwide consumption is pegged to expand from 33% to 43% in this period.

The rise of the local middle class – people spending between $2 and $20 per day, based on purchase power parities – will drive such a process.

"Developing Asia's middle class is rapidly increasing its size and purchasing power, and will be an increasingly important force in global economic rebalancing," said Jong-Wha Lee, chief economist at the ADB.

"Even though the Asian middle class has significantly lower income and spending relative to the Western middle class, its growth in expenditure has been remarkable."

While only contributing 21% of the Asian population in 1990, this demographic made up 56% of the area's residents – or 1.9bn people – in 2008, the ADB said.

China registered the most substantial growth, with 800m individuals achieving the required level of daily expenditure for the first time from 1990 to 2008.

The country also houses more mid-tier shoppers than the rest of Asia combined, a trend that multinational corporations have proved eager to exploit almost without exception.

However, the wider possibilities available across the continent are evidenced by the near threefold uptick in demand recorded between 1990 and 2008.

"Asia's emerging middle class provides great opportunities for business. It has already raised the consumption of consumer durables," said Lee.

"It has also promoted 'frugal innovation', as companies produce low-cost innovative products targeted at relatively lower-middle income consumers."

To further facilitate the positive shifts currently at work, governments must improve salaries, education and healthcare to "prevent slippage back into poverty" while simultaneously stimulating sales.

Such an approach is necessary given half of this new generation of shoppers fall into the bracket of "lower-middle class", making acquisitions valued at between $2 and $4 a day.

"Asia's rapidly-growing middle class remains vulnerable ... A major shock can easily send them back into poverty," said Lee.

Should legislators meet the objectives of delivering sustainable economic growth, the results are obvious.

"Asia's expanding middle class could become the development story over the next several decades. It will offer the potential for greater poverty reduction, economic innovation, and improved living standards," Lee concluded.

Data sourced from Asian Development Bank; additional content by Warc staff