As global businesses continue to face uncertainty and challenges posed by the Coronavirus (COVID-19) pandemic, insights into global income and expenditure trends are critical in corporate strategy planning. Euromonitor International has identified the top five trends to help companies predict the purchasing power potential and spending patterns of the most important consumer segments, and thereby identify business opportunities.
Worsening income inequality
The COVID-19 pandemic has exposed and exacerbated inequality between rich and poor economies, as well as within countries. In countries where governments have the financial resources to provide welfare protections, such policy responses are likely to be short-term fixes. In the long term, however, the distributional consequences of the pandemic are bound to widen inequality.
Between 2020 and 2040, income inequality – as measured by the Gini index – is expected to worsen or at least not improve in 72 out of the 103 major economies that Euromonitor International has data for. Companies need to strategise for increasingly polarised consumer markets where the middle classes are being squeezed and low-income consumers at the base of the pyramid are increasing in importance.
Furthermore, it is important to look at inequality beyond purely from the lens of income distribution and take into consideration other dimensions of inequality such as gender, health, digital connectivity and infrastructure access when planning business strategy, as these factors can direct impact consumer demand for certain products and services.
Bottom of the pyramid: Expanding low-income segment due to the COVID-19 pandemic
The so-called bottom of the pyramid (BOP) refers to the base of the income and wealth distribution, where a large number of consumers on low incomes are concentrated. In 2020, as a consequence of the COVID-19 pandemic, the global number of households on an annual disposable income of less than USD5,000 reached 492 million (accounting for 24.3% of global households), a significant increase from 447 million households (22.4% of global total) in the previous year.
It will not be until 2024 when the number of low-income households will return to 2019 levels and decline further. In 2040, the number of low-income households globally is expected to total 287 million, accounting for 11.9% of global households.
The BOP can be of strategic importance because it offers multi-trillion-dollar opportunities with huge unmet demand for basic goods and services. Brands and businesses that successfully win the loyalty of low-income consumers can expect to grow with them over the long term when they exit poverty to join the emerging middle classes.
Global Income Distribution 2020/2040
Source: Euromonitor International from national statistics
Middle class reset
As the long-term trend is for households to continue to exit poverty and enter the middle class, in 2040 the number of households on an annual disposable income of USD15,000-45,000 is set to reach 856 million, accounting for one in three households globally (35.5%). This is a significant expansion from 534 million households (26.4%) in 2020.
Middle-class consumers are typically an important target for consumer-focused businesses as they constitute the bulk of consumption in most countries. When targeting this group, however, businesses need to keep in mind the Middle Class Reset megatrend. Driven by weak income growth and efforts to maximise value for money, growing awareness of environmental issues and changing values and priorities, this megatrend saw middle-class consumers move away from conspicuous consumption (which previously was a visible marker of middle-class success) towards more cautious and conscious consumption. This does not necessarily mean that middle-class consumers are buying less. Instead, whilst more selective, they are still keen to try new products and willing to spend on things that align with their values and priorities.
Silver consumers: Over-65s enjoy relatively high purchasing power
Globally, people aged 65+ enjoy relatively high average gross incomes – a result of the lifelong accumulation of wealth and assets, as well as multiple income sources, such as pensions, interest from saving accounts and investment incomes.
Average Gross Income of the Global Population by Age 2020/2040
Source: Euromonitor International from national statistics
Even when the over-65s are not in receipt of the highest levels of income, their discretionary spending power can still be considerable, because older people are often homeowners without mortgages and therefore do not incur significant spending on the essential of housing. Also, they might well not have young dependents living with them. In many countries, the income tax rates for people aged 65+ can sometimes be lower, whilst older people also receive subsidies, such as cheaper or free public transport.
Although older consumers have relatively high and rising purchasing power in general, it is important to note that the fortunes of the over-65s are highly uneven from country to country, and even within a country. In countries where social protection systems are either absent or inadequate, older people are particularly vulnerable to economic insecurity, as well as poverty.
The Asian Century: Asia Pacific to become the largest regional market in 2026
Despite weakening economic growth forecasts as a result of the COVID-19 pandemic, Asia Pacific continues to be home to dynamic consumer markets. Already, China, Japan and India are among the world’s top five largest markets as measured by total consumer expenditure. By 2034, four out of the 10 largest markets globally will be in Asia.
In 2026, Asia Pacific is set to have outspent North America as the largest regional market and to account for 31.7% of global consumer expenditure. The region is expected to generate nearly 40% of global consumption by 2040.
Asia will set trends and drive growth in many industries and categories, from beauty and fashion through to leisure and technology. Although Asian markets offer huge potential and opportunities, businesses will need to understand the region’s markets, cultures and dynamics in order to succeed.