Center of Gravity of World’s Middle Class Shifts from West to East

India, the world’s second most populous country, could become the world’s largest middle class consumer by 2030, surpassing both China and the US.

With emerging markets growing at a much faster pace than their developed counterparts, the structure of the world’s middle class is changing, with the center of gravity shifting from the West to the East. In fact, the middle class in the Asia-Pacific region, led by China and India, is forecasted to be more than five times larger than that of North America in the next 5 years and 10 times larger by 2030.

Arguably, the definition of the middle class is a contentious issue for which there is no standardized definition. In reality, the underlying determinants of being classified middle class come down to income levels and consequently spending power, which varies in different countries. It is therefore not a question of relative per capita incomes, which typically determine rich and poor countries.

The West-East shift will have major implications for the production and consumption of consumer goods and infrastructure development in emerging markets, leading to an acceleration of economic growth. What this implies is that emerging markets will continue to dominate global growth for decades to come as the contribution of the middle class to economic growth is deemed to be more sustainable than export-led growth.[i]

The middle class is also classified as the most important consuming class. It has an income elasticity of demand that is greater than 1,[ii] which means that its increase in consumption, especially for durable goods, is typically greater than the increase in its income levels.

The surge in the middle class in emerging markets also makes them an attractive export destination for developed markets goods and services; and for increasing foreign direct investments.

By 2030, it is estimated that the world’s middle class population will grow to 4.9 billion, up from 1.8 billion in 2009. The Asia Pacific region will account for 3.2 billion or two-thirds of the middle class population in 2030, up from 28% in 2009. Comparatively, the share of the middle class in North America will shrink from 338 million or 18% in 2009 to approximately 322 million or 7% in 2030.

China and India will account for the largest share of the middle class in the Asia Pacific region. The Brookings Institution[iii] estimates that by 2030, over 70% of China’s population could be middle class. However, it projects that by 2030 India could be the world’s largest consumer market, surpassing both China and the US.

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[i] The New Global Middle Class: A Cross-over From West to East, Brookings Institution, 2010

[ii] ibid

[iii] ibid

Dwarka Lakhan

Dwarka Lakhan is a pioneer in emerging markets journalism in Canada. His first emerging markets article, “Africa Joins Ranks of the Emerging,” appeared in Investment Executive, Canada’s leading newspaper for financial advisors, in September 1994. Since then he has written hundreds of articles on the full spectrum of emerging markets and has conducted more than two thousand interviews with emerging and frontier markets investment professionals.

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