June 01, 2011
Share of Growth in Discretionary Spending Between Developed and Emerging Markets will be About Equal in next Five Years
Singapore, 1 June 2011: Consumers in emerging markets will drive value creation and growth in the global economy over the coming five years, according to a report by MasterCard Worldwide.
The size of household consumption in emerging markets will be around two-thirds of that of developed markets by 2016, up from one quarter in 2008.
Between 2012 and 2016 emerging markets will add an average of US$1.2 trillion of consumer spending to the global economy per year, whereas developed markets will add only around US$700 billion. Transitional markets will add another US$95 billion.
The report says that real GDP growth for developed markets will be 2% between 2011-2016, 6% for emerging markets and 4% for transitional markets – all significantly below their respective average in the previous decade.
Between 2008 and 2016 the share in household consumption for developed markets will drop from 77.4% in 2008 to 58.3% in 2016, with emerging markets’ share increasing from 19.5% in 2008 to 38.7% in 2016, with the share for transitional markets remaining unchanged.
The report finds between 2000 and 2008 developed markets accounted for 88.2% of the global growth in discretionary spending, while emerging markets accounted for only 9.2%, followed by transitional markets with 2.6%. In the coming five years the shares of growth in discretionary spending between developed and emerging markets will be about equal (49.0% versus 47.8%).
“This is a significant milestone, very possibly the first time in the last 200 years when consumers in emerging markets drive value creation in equal measure with consumers in the developed markets.”
The size of “active consumers”, defined as those aged 15 to 65, are expected to continue to rise in the coming years in emerging markets, whereas they are projected to remain unchanged in developing markets. As such, the business implications of the youth consumer segment will become vital in terms of leveraging technology trends, engaging information and marketing channels. The rise of younger consumers will also likely inject much needed optimism into the global economy.
“In the coming years, choices by consumers in emerging markets will begin to dominate in determining how value is being created in the consumer markets. It is not just the difference in overall growth that matters, but it is the rising share in the growth of discretionary consumption in emerging markets that will be decisive.”
The report cautions against exaggerated claims of the demise of the US consumer market.
“The fact of the matter is that American consumers are still spending, albeit much more carefully than before. The real risk to businesses is to unthinkingly buy into this fallacy and underestimate the resilience of American consumers.”
“From a business perspective, of the change in incremental growth is driven by consumption of basic necessities and nothing else, then the impact may not be that significant. It is change in discretionary consumption that the business impact will be strongly felt.”
“This, while value creation lies at the heart of the economic process, consumption lies at the heart of value creation.”
MasterCard (NYSE: MA), www.mastercard.com, is a technology company in the global payments industry. We operate the world’s fastest payments processing network, connecting consumers, financial institutions, merchants, governments and businesses in more than 210 countries and territories. MasterCard’s products and solutions make everyday commerce activities – such as shopping, traveling, running a business and managing finances – easier, more secure and more efficient for everyone. Follow us on Twitter @MasterCardNews, join the discussion on the Cashless Conversations Blog and subscribe for the latest news.