Over 50% of global population now middle class
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Over 50% of global population now middle class

In what can only be seen as good news for consumption – and luxury in particular – more than half the world’s population is now middle class. Every second, another five people join this demographic, and gain the ability to buy goods they desire in addition to goods they need. Unsurprisingly, most of the growth is in Asia, and China in particular has contributed massively to the middle class’s global growth.

graph 0410 middle class

The emerging middle class is a driver of consumption generally, and accounts for about half of it worldwide. It also drives political change and business transformation. Kristofer Hamel, the chief operating officer of World Data Lab, which is responsible for the research, said: “The milestone is important because the middle class is the engine of modern economies. These are the people who spend the most on the things that are produced in the economy. Transportation services, the wide variety of consumer products, food products and financial products are broadly catered to serve people who can afford to spend a certain amount and have a wide variety of needs.”

World Data Lab defines a middle-class person as someone earning between $11 and $110 per day – the same range that many organisations and governments (including India and Mexico) use. Hamel says that there are now 3.59 billion people who belong to this class, and the number is expected to increase to 5.3 billion by 2030.

Dominion’s Global Trends Luxury Fund has returned 8% to investors so far this year

graph 0410 middle class 2

Source: dominion-funds.com

The middle class is also a key driver of the luxury trend, as luxury purchases begin when you have – effectively – spare money. That is, once you can afford the necessities, you don’t stop consuming: you choose to buy upper-market alternatives, or make purchases driven by desire rather than need. For some people, that’s a Cartier watch; for others, it’s a cup of fancy coffee in the morning or a nicer pair of sneakers. Homi Kharas, a senior fellow at the Brookings Institution who led the World Data Lab’s research, summed the situation up like this: “one of the things about the middle class is they love product differentiation. One pair of blue jeans is not the same as another pair of blue jeans.”

Disclosure

Dominion’s Global Trends Luxury Fund holds a number of companies which are exposed to the influence of the emerging middle classes.


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