Emerging markets will dominate the top five largest economies in 2020, according to a recent Euromonitor International report.
Media Eghbal, a country insight managing editor for Euromonitor International, says in the report "Forecast: World’s Largest Economies in 2020,” the most symbolic shift will be when China overtakes the U.S. as the largest economy globally. Euromonitor predicts that the world’s five largest economies in 2020, measured in Purchasing Power Parity terms (PPP) will be: China at the number one ranking, the U.S. at number two, India at number three, Japan at number four and Russia at number five (click here to view the ranking chart).
Euromonitor forecasts the three largest emerging economies will account for around 30% of global Gross Domestic Product (GDP) in PPP terms in 2020 (click here to view the chart) compared to 23.5% in 2012, when there were just two emerging markets among the five largest economies (1. U.S. 2. China 3. India 4. Japan 5. Germany).
And even sooner this year, Eghbal forecasts that in 2013 emerging markets will overtake developed countries in their share of the global economy in PPP terms for the first time (forecast 51% of world GDP), as advanced economies were hit much harder through greater integration in global financial markets and larger fiscal imbalances and government debt.
What does this mean for global consumer markets?
"As emerging market economies expand, standards of living will improve, poverty declines, and real incomes generally rise, with a corresponding expansion of the global middle class," Eghbal said. "This will have tremendous implications for global consumer market development."
Further, the analyst mentioned that consumer markets are seeing a similar shift towards emerging markets. In global rankings of the largest consumer markets measured by total consumer expenditure in U.S. dollar terms, China was the only emerging country in the top five, at third place (behind the U.S. and Japan). By 2020, Euromonitor forecasts that Brazil will join China in the five largest consumer markets in real U.S. dollar terms. Together, these two countries will account for 13.7% of global consumer spending in 2020 but this is still far behind the world’s largest consumer market, the U.S., which alone will make up just under a quarter of global consumer expenditure.
However, in per capita terms, developing market convergence with advanced economies is a long way off with significant gaps in spending power and living standards, Eghbal added.
"As the middle class grows in developing markets, there will be a greater propensity for discretionary spending outside of the essential categories of food and housing. Yet poverty and low incomes will remain widespread in some countries, so businesses should also consider the 'bottom of the pyramid' market," Eghbal said.
In Indonesia, for example, in 2012 there were 36.7 million households with a disposable income less than $7,500—equivalent to almost 60% of households.