The Rise of the Emerging Market Global Middle Class - is a new research of SKOLKOVO

The economies of the emerging markets have made great strides in recent years and in some cases decades. Hundreds of millions have been lifted out of poverty in both China and India. For the first time in history, these economies are leading the world economic recovery. Collectively, their foreign exchange reserves amount to 20% of world GDP. Despite all this progress however, they still essentially lack a sizeable global middle class. While hundreds of millions may no longer be classified as living in poverty, as defined by the World Bank, relatively few have the purchasing power of the great middle classes in the rich, developed world.

This paper will examine what this rise might look like and some of its economic consequences for the global economy.

The highlights from this month’s brief include:

• This is history’s third great middle class surge, and this time, it is coming exclusively from the emerging markets
• China has at least 400 million people on the threshold of becoming globally middle class. It will lead the world in adding people to these ranks over the next 15 years
• India will replace China as the biggest contributor to the global middle class around 2027
• Asia, currently home to 28% of the world’s global middle class, is projected to account for two-thirds by 2030
• In terms of its impact on global economic growth, consumer spending between the emerging and developed market economies is now roughly equal.
• While income inequality may be rising rapidly within most countries, the distribution of global income among countries is rapidly becoming more equal.

Who are the middle class?

Many economists on the subject have used the World Bank guideline range of $2 to $13 a day (at 2005 PPP [purchasing power parity] prices). In a practical sense, emerging markets really possess two distinct middle classes. One consists of those who are middle class by any standard in the world. For example, they include those possessing an income between the average earnings of a Brazilian and an average German. This “global middle class” is growing fast but only makes up a small fraction of the developing world.

The other, much larger group consists of those who are middle-class by the standards of the developing world. This “developing middle class” is growing very rapidly and by many definitions recently became a majority of the developing world’s population for the first time in history.

It’s clear that the global emerging market economies are likely to deliver middle classes in size and scope that will eventually power the global economy some day. The long-run looks great but what about now? The multitrillion dollar question is whether emerging market consumption is large enough today to give the much needed lift to global consumption and economic activity over the next few years.

It is probably enough to keep global consumption, and in turn, global economic activity, from recessionary conditions over the next couple years. Naturally this scenario assumes that growth in the big emerging market economies do not falter over the short-run.

You can read a full text of the research here.