Euro Monitor: Despite slower growth in Emerging Asia, the markets should not be overlooked

Despite slower GDP growth in Emerging Asia, Euro Monitors argues, the the markets here should not be overlooked. But with the trouble of middle income trap and ballooning middle class debt, can Asian consumers continue to be the market for global goods?

From The Euromonitor: (Source)

One in every two dollars spent in emerging markets is spent in Brazil, Russia, India and China. Nevertheless emerging markets beyond BRIC offer stronger percentage growth potential. In some of these markets a middle class income remains relatively low, but companies may still want to consider a presence in order to begin to build brand awareness and create and shape the market for their products and services from the very beginning.

Emerging Asian economies have not avoided the glare of bad publicity surrounding the emerging market slowdown, but there are many reasons to remain positive for the region’s long-term growth prospects. Putting the five largest emerging Asian consumer markets under the microscope reveals some key long term strengths.

These five countries, the largest consumer markets in Emerging Asia, will have a combined market size of US$8,300 billion in 2020 (in 2012 prices), an increase of US$3,068 billion – or equivalent to another UK and France combined – since 2013. Even with the challenges, and slower rates of growth than in recent years, this market should not be overlooked. Much of the speed of these markets’ growth depends on the successful implementation of reform, but even so there is much to be gained from doing business in Emerging Asia.

China’s rebalancing is leading to slower growth than in recent years, in 2012 China grew by 7.8%, the slowest pace in 13 years; but a larger consumer base will eventually lead to better quality growth – and more opportunities for multi-nationals. In 2020, per capita consumer expenditure is expected to reach US$3,822 (in 2012 prices). Taken overall this equates to growth in consumer expenditure of US$2,170 billion – compared to growth of US$2,227 billion over the same period in the USA and US$633 billion in the eurozone. The government is also in a strong position to stimulate the economy when needed – its stimulus of 2013 has already led to an acceleration of growth to 7.8% in the third quarter (over the same period of the previous year).

Indian Growth is Lagging, but Reform Could See Consumer Market Grow by US$ per Annum

Economic growth in India has been disappointing, since its peak of 11.2% in 2010. The economy is in dire need of structural reform and improvements to the business environment – India was ranked 134 out of 189 economies in the World Bank’s latest Ease of Doing Business report. Particular problems include weak infrastructure, bureaucracy, high inflation and the large current account deficit. However, with a population of 1.2 billion in 2013, and 68.0% still living in rural areas, the long-term potential of the country is huge. Urbanisation would unlock growth potential and drive consumer spending. In 2010, when the economy grew by 11.2%, total consumer expenditure increased by US$44.9 billion. With a new Head of the Reserve Bank and an election in May 2014 the first shoots of optimism may be beginning to re-appear, but growth prospects and sustained optimism remain dependent on reform; without which, the country may be unable to escape the “Hindu rate of growth” for many more years.

Indonesian Consumer Market to Rival South Korea’s by 2020

Inflationary pressure driven by the removal of fuel subsidies and the depreciation of the rupiah are hurting private consumption. Infrastructure is poor, which adds to the cost of doing business and the business environment itself is relatively difficult – with the country ranked 120 out of 189 in the World Bank’s 2014 Ease of Doing Business survey. However, unemployment is low, and has decreased in 2013 to an expected 5.8% and despite slower economic growth, Indonesia is still expected to be the world’s 14th largest economy in PPP terms by 2020. In 2020, 28.7 million households will have disposable incomes over US$10,000 indicating spending power approaching US$30 per day. In terms of size, the consumer market in 2020 will come close to that of South Korea.

Thailand Beats Canada for Ease of Doing Business

The Thai economy is in the doldrums in 2013. Growth for the year is expected to come in at 3.6% – less than half the rate of 2010 (the recent peak). The downturn is relatively broad-based with weak exports and domestic demand both contributing factors. Yet Thailand has the best business environment of these five economies, and in 18th position, is second only to Malaysia in Emerging Asia, according to the World Bank’s Ease of Doing Business 2014 report. It is in fact easier to do business in Thailand than it is in Canada, Germany and Japan. Greater Bangkok households had an average consumer expenditure of US$17,160 in 2013 – amongst the highest of these five economies. In the medium term, economic fundamentals are strong, and growth is expected to be steady to 2020. Much depends on the performance of the export and tourism sectors, which in 2013 contributed 59.5% and 8.1% to GDP respectively.

Philippines BPO Industry Key Driver of Income Growth

The Philippines is one of the success stories in the region and is expected to report the fastest growth of these five economies this year. In 2006, its consumer market was the same size as Denmark’s, but by 2012 it was 23% larger. Between 2013 and 2020, consumer expenditure in the Philippines is expected to increase by 45% compared to an average of 26% globally and 37% in Asia Pacific overall. The economy benefits from a strong and growing business processing outsourcing (BPO) industry, the employees of which, with their relatively high incomes, have been boosting private consumption – aided by continued growth in remittances. Real GDP growth is expected to average 6.0% between 2013 and 2020.

A Market Worth a Combined US$8,300 Billion in 2020

These five countries, the largest consumer markets in Emerging Asia, will have a combined market size of US$8,300 billion in 2020 (in 2012 prices), an increase of US$3,068 billion – or equivalent to another UK and France combined – since 2013. Even with the challenges outlined here, and slower rates of growth than in recent years, this market should not be overlooked. Much of the speed of these markets’ growth depends on the successful implementation of reform, but even so there is much to be gained from doing business in Emerging Asia.

The emerging market slowdown does not mean that there are no longer opportunities for growth. Rather companies may have to search harder for opportunities – particularly beyond Brazil, Russia, India and China – and also work harder to attract the middle classes in these markets.

Some Key Facts to Consider

Between 2013 and 2020 emerging market economies will grow almost three times faster than developed economies;

By 2020, five of the world’s largest 10 economies will be emerging markets — China, India, Russia, Brazil and Mexico — accounting for a combined $47 trillion in GDP (in PPP terms)

In 2013 emerging markets are home to 85% of the world’s population and 90% of those aged less than 30;

All Emerging Markets are not Created Equal

In 2013, GDP per capita in emerging markets ranges from $438 in the Democratic Republic of Congo, to $104,775 in Qatar (in PPP terms). Thirty-three emerging markets have a per capita GDP below $2,000 in PPP terms but the same number have a per capita GDP of above $15,000.

They range from Tuvalu with a population of 9,900 to China, the world’s largest country, with a population of 1.4 billion in 2013; from Bulgaria with a median age of 42.2 years in 2013 through to Niger with a median age of just 15.5 years in the same year; and the United Arab Emirates where 87.2% of the population is of working age, to Niger where just 48.9% are aged 15-64 in 2013.

In 2013, 45 emerging markets have consumer expenditure above US$5,000 per capita, but 34 have spending below US$1,000. In a high-ranking market such as Chile, 69% of household budgets are available for spending on non-essentials (excludes housing, food and non-alcoholic beverages); while in a low-ranking country such as Kenya this drops to 47%.

Looking at the world’s 20 largest non-BRIC emerging consumer markets, and using the definition of those earning between 50% and 100% of gross household income, we can see that a middle class income ranges from around U$3,000–US$6,000 per household in Nigeria up to US$74,000–US$150,000 in the United Arab Emirates.

Become Aquatinted with the Middle Class

One tactic to consider is to deepen your understanding of the middle classes beyond the BRIC markets. Are they typical nuclear families with father, mother, children and detached house, as is more familiar in the UK or USA? Or are they large, single-income households whose main shopper is penny-pinching and sceptical of new products? Are they savvy consumers who expect quality and convenience? Or are they new consumers who are still figuring out how to deal with all the choices in their new, local supermarket?

To learn more, download our new White Paper Reaching the Emerging Middle Classes Beyond BRIC. The new white paper highlights key information about the emerging middle classes with insight into economic and demographic trends, including income and population growth, using information from Euromonitor’s Countries & Consumers system. It also discusses consumer spending priorities and lifestyle preferences, including habits, culture and beliefs, using key takeaways and insight direct from consumers participating in Euromonitor’s Middle Class Home Survey.

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