Download The Next Global Engines of Growth

MANILA BULLETIN
Business & Society
October 27, 2008
The Next Global Engines of Growth
The twenty-year American consumer boom has ended. It will take some time before
the world economy can expect the U.S. to be an engine of growth through a consumption-led
recovery.
The U.S. economy will look very much like that of Japan in which consumers
have been reluctant to spend, fearful of their future security. For obvious reasons, foreign
investors will think twice before bringing in funds into the U.S. The crisis may actually have
its blessings: the U.S. may finally address its humongous fiscal and trade deficits.
Fortunately for the world economy, a global crisis can be averted because of the
increasing strength of the so-called emerging markets.
These are economies in which
hundreds of millions of consumers are buying their first homes, their first cars, their first
electronic gadgets, etc. They are recent joiners of the middle class. The first ones to be
identified by economists from Goldman Sachs were Brazil, Russia, China and India. Then
the Next Eleven followed soon:
Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria,
Pakistan, the Philippines , South Korea, Turkey, and Vietnam. All these emerging economies
account for two-thirds of the world's population. Out of the 4 billion people they have, some
900 million are in the middle class, equipped with purchasing power to buy the products and
services of a modern economy.
Compare this figure with the 270 million American
consumers (out of a total of 300 million Americans) who have been propping up the world's
economy over the last twenty years.
A very obvious common denominator among the fifteen emerging markets that are
expected to dominate the global economy in the next twenty years is their large populations.
The smallest, South Korea, has 50 million people. With the exception of South Korea, all of
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them are rich in natural resources. Like what the U.S. did during the second half of the last
century, they can follow a double-track strategy: attain high rates of economic growth by
both exporting and tapping the large domestic markets. This is already very obvious in both
China and India. Investors--both domestic and foreign--are bullish about these two giant
economies because they can use them as bases for exports as well as selling to their internal
markets. Many foreign investors are now entering China in order to sell to the 250-300
million Chinese customers who are wealthy enough to splurge on all types of consumer
goods and services.
The Asian region accounts for over 3 billion people in these emerging markets. Of
these, there are some 600 million in the middle class and expanding by the day. In a good
number of the countries, the savings rate has been traditionally high as in China. There are
important factors that influence consumption other than an increase in income, such as
improved infrastructures, the proliferation of commercial centers or malls, the improvement
of the quality of education, the telecom and media revolution, and the increased access to the
internet. Even if some of them suffer a deceleration in GDP growth because of the slow
down in their major export markets like the U.S., Japan, and the EU, the markets for many
consumer goods and services can continue to grow at hefty rates as they dip into their savings
to improve their quality of life. This is one reason why we can speak of at least a partial
decoupling of the emerging markets from the U.S. and the other industrialized nations. The
decoupling may not be obvious in the capital markets as stock markets all over the world
follow closely what happens in Wall Street. But decoupling is more observable in the real
markets for goods and services. To illustrate this, as the real estate sector takes a beating in
the U.S. and in Europe, real estate in the Philippines is still on the upswing, especially in the
office buildings (thanks to the business process outsourcing industry) and in the low-cost and
medium-cost housing markets.
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These trends were recently confirmed by the second Global Growth@Riskreport
released by the World Economic Forum. According to the WEF, rapid population growth,
especially the growth of the middle class, could be the next economic growth driver in the
world if governments and businesses learn to make this consumption-based growth
sustainable. The WEF report said that by 2012, the world's population is expected to grow
by almost percent to 6.9 billion, and by 2050 to 9 billion. Central America, North Africa and
Southeast Asia are the regions with the highest expected population growth for 2007-2012.
According to the Report, "Power is shifting to middle-income economies with a
growing middle class. Such a global middle class will results in hundreds of millions of
people changing dietary habits and seeking better housing and education, adopting more
sophisticated technology and financial services.
While their spending power will drive
growth, governments and businesses need to create ways to make this coming boom in
consumption sustainable."
The report also said that the biggest opportunity is for
governments and companies to work together to create the necessary infrastructures and
serve these markets with more sustainable products and models. If the middle class is
presented with the right products, these consumers from the emerging economies could
influence Western consumers to choose more sustainable consumption paths. To make
consumption growth sustainable, governments and companies must invest in efforts to
preserve natural resources and implement technological innovations that are environment
friendly.
All this information should be food for thought to the people in Congress and the
business community who are obsessed with population control. They should rethink their
position and see in population growth a positive stimulus to human development and to
efforts to devise more sustainable models of economic growth. For comments my email
address is [email protected].
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