The Outlook for Global Consumer Spending
Amid rising political and trade tensions among many of the world’s leading economies, recent economic results serve as a strong reminder that, when it comes to what drives global economic growth, the consumer is still the king (or queen). In the United States, strong levels of consumer spending have more than offset lower-than-hoped-for business spending and the impact of a strong US dollar on exporters. In China, consumer spending has remained a strong driver of growth, even as concerns over the trade war with the United States and rising debt levels have slowed growth in many other sectors of the Chinese economy.
At the same time, major changes are underway within the consumer sector all around the world. For example, millennials are become an ever-more important segment of the consumer market and are dramatically shaking up many of the leading sectors of the global economy. At the same time, consumers over the age of 65 are the fastest-growing consumer segment in most of the world’s leading economies thanks to rising life expectancies and a concentration of wealth among older consumers. Altogether, consumer spending remains the key driver of global economic growth, and will remain so for the foreseeable future.
So far in 2018, consumer spending has done much to drive global economic growth to its highest levels in recent years. A look at retail sales growth in many key economies highlights this fact. In fact, those economies that have performed relatively well in the face of growing external threats, such as the United States and China, have done so thanks to higher levels of consumer spending growth. In fact, this highlights the importance of an economy’s domestic market, as this plays a major role in determining that economy’s economic performance in the face of external headwinds.
While consumer spending growth rates are higher in emerging markets, purchasing power levels in developed economies remain much higher and thus, it is the world’s wealthier markets that remain crucial to the success for businesses focused on consumer goods or services. In fact, when one looks at estimated purchasing power levels of households in the world’s leading economies, it is clear just how important developed economies are for the consumer sector.
However, finding growth markets in developed economies is becoming increasingly difficult. For example, many important developed markets in Europe and East Asia are facing a demographic decline as their populations stagnant or shrink. This is leading to an overall decline in the number of consumers in many key markets. At the same time, consumption patterns in the world’s wealthier markets are rapidly changing thanks to an evolving consumer base, new forms of distribution, and the unrelenting pace of technological change. These factors and more and posing major challenges for business operating in the consumer sectors of developed markets. Likewise, these changes are posing a major challenge for many developed countries, which are finding it more difficult to generate economic growth in the 21stcentury.
With the level of uncertainty in many developed markets on the rise, more and more businesses are turning to consumer markets in emerging economies as a source of growth. This strategy has certainly paid dividends for those businesses targeting consumers in emerging markets in Asia, most notably China. With nearly 1.4 billion potential consumers and an economy that has averaged growth of nearly 10% per year since 1980, China and its vast market have been the key growth market for many of the world’s leading consumer-oriented businesses. In addition to China, Asian emerging markets such as India, Indonesia, Vietnam and others are also likely to experience significant increases in purchasing power levels, enabling them to become major consumer markets in their own right.
Outside of Asia, consumer spending levels have largely been disappointing in recent years. In the first few years of this decade, many consumer-oriented businesses looked at the high rates of economic growth in Latin America, East Europe, Africa and the Middle East and hoped that this would lead to major increases in consumer spending. However, the collapse of commodity prices that began in 2014 resulted in these hopes being dashed, at least for the present time. Nevertheless, as the search for growth markets continues, businesses will look to the expanding populations in these emerging markets with the hope that they too will become major growth markets for consumer goods and services in the coming years.
Consumer markets, both in developed and emerging economies, are undergoing massive changes. The ways that consumers purchase goods and services, and the way in which these goods and services are distributed to consumers, are changing rapidly. The incredible expansion of online retailers such as Amazon and Alibaba has radically altered the global retail industry and created new avenues for the distribution of consumer goods and services. Likewise, spending habits are changing rapidly around the world. One example of this is that many consumers, particularly younger consumers, are opting for experience-related purchases as opposed to possession-related purchases. Meanwhile, demographic changes are leading to new challenges, as millennial consumers increasingly drive trends in many sectors, while over-65 consumers make up an increasing share of the global consumer market. Altogether, these changes in consumption patterns and the make-up of the global consumer base will continue to drive change in many industries in the years ahead.
Overall, these are challenging times for the global consumer goods and services sector. In many key markets, demand is quite high and this is driving healthy rates of growth for many consumer-oriented businesses. However, these businesses face many challenges, including the threat of their access to key export markets being jeopardized by the rise of new trade barriers. Meanwhile, those consumer markets that promise the highest rates of growth in the coming years also come with higher levels of risk. As consumption and distribution patterns change, the global consumer sector will continue to change as well. For those businesses that master these changes, there will be many opportunities for growth as new markets and new segments emerge to drive growth in the coming years. For those businesses that fail to adapt to these changes, there is a possibility that they will join the long list of consumer goods and services companies that failed to adopt to the changes of previous decades.