Rise of the global consumer may reshape global economy

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Capitalism is flourishing worldwide, not only at the global level, but also at the individual level. There are millions of people worldwide, who aren’t waiting for the government to pass some law or for a bank to make them a loan to start a business. They’re not listening to CNBC every day and they’re not waiting for the next election. They are just going for it. There are people who went from having zero opportunities, to owning their own business, in a relatively short period of time.

It’s happening at the ground level across the globe, in places like Vietnam, Western China and Africa. One example is of a farmer in Botswana, who goes to the city and purchases a scooter. He then starts his own business, hires two or three employees and finds himself and his employees serving the local community and supporting their families.

This type of growth is occurring with the help of the Internet and cellphones. When you multiply that by hundreds of millions of people, it’s unbelievably huge. That’s where much of the growth in the world economy is going to come from over the next 20 years.

Buying power
In Peru and other developing countries, young men and women are doing things their parents never dreamed about. They are buying washing machines, taking plane rides and calling home on smartphones.

Indeed, millions of people around the world are now beginning to have a lifestyle that not so long ago, seemed unattainable. The improvement in their standard of living represents a remarkable transformation that could have significant ramifications for the global economy and companies around the world. This increasing affluence and emergence of consumer classes in developing countries has the potential to be a primary engine of economic growth.

According to the McKinsey Global Institute, an estimated 4.2 billion people will make up the consuming class, or those with disposable income, by the year 2025. This is nearly double the number in 2010. In 2010, the emerging markets accounted for $12 trillion in spending. In 2025, they are expected to account for about $30 trillion of spending.

Investment advantages
This broad expansion of a consumer class with discretionary income represents a significant opportunity for multinational corporations and local businesses. As a new wave of consumers grows around the globe, there is likely to be a period during which the purchase of goods and services accelerates at a rapid pace. The cycle is sometimes charted as an “S” curve. At the low end of the curve, products are still too expensive for many consumers, and sales are slow. But as incomes reach a threshold where the product becomes affordable, sales take off.

For long-term investors, the changes in technology, and the adoption of products among the consumer class, can provide an investment opportunity that few could have imagined even a decade ago. 

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2016.

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