The rise of Southeast Asia's consumer class
Kevin Martin charts the rise of a Southeast Asian middle class who - thanks to income growth - will not only spend more but also save more
A wave of new consumers is expected to emerge from countries across Southeast Asia, mirroring the recent rise in wealth in China. A combination of changing demographics and income growth is set to swell the middle class and encourage more spending on cars, clothing, household gadgets, education and health care. This should be a key driver to economic expansion in the region.
The number of wealthy individuals in Southeast Asia is still low compared with developed economies, but income levels are growing. More than 80 million people are expected to join Southeast Asia's workforce between now and 2040, according to the UN. With a greater percentage of the population in a position to save, countries should be able to spend less on supporting their young and invest more on lifting productivity and spurring economic growth.
There is already evidence that the region is becoming richer on a relative basis. The Association of Southeast Asian Nations' slice of Asia's total financial wealth had increased to 8 per cent in 2013 from 5 per cent in 2005 and over the next five years our economists expect the financial assets of Indonesia, Malaysia, Thailand, the Philippines and Vietnam to grow at a faster rate than China's.
The wages of workers in emerging economies are forecast to continue to rise as their levels of productivity are driven higher by better machinery, technology and skill levels. This income growth is expected to lift many in the region into what the World Bank defines as middle- and high-income brackets over the next few decades.
But challenges remain. With the working-age population growing, jobs will need to be created and money needs to be found to invest in technology. It is a diverse region and the 10 Asean members face different political obstacles and have varying needs and resources to invest in education, infrastructure, and research and development.
Productivity gains should lead to higher incomes and a rise in consumer spending. People will be able to buy more clothes, more electronic gadgets and household appliances. By 2050, the Philippines' annual spending on restaurants, recreation and personal care is expected to be at least 25 times that spent today.
As this region becomes richer, its population is likely to live longer and spend more on health and insurance to prepare for this. The development of its financial system will also provide easier access to financing. People will have more money to save for their future and their retirement, creating increased demand for wealth management services.
Their savings could provide a crucial supply of capital for investment in projects, such as infrastructure that will also help keep the region's economies growing.
Asian consumers are more affluent, more discerning and better connected than ever before. They are already starting to move from being trend followers to being trend creators, a shift that presents significant challenges for established brands and significant opportunities for their increasingly self-confident regional competitors.
For the past 40 years, Asia has supplied the global economy; today, it is ready to shape it.
Kevin Martin is HSBC's Asia-Pacific regional head of retail banking and wealth management