The middle class is exploding worldwide, driving emerging markets to continue booming, a new report from Goldman Sachs says.
The report estimates that about 70 million people a year globally are moving up sufficiently in purchasing power parity to enter the middle class.
"The phenomenon may continue for the next 20 years, with this global middle accelerating to 90 million a year by 2030," Goldman Chief Economist Jim O'Neill writes in the Financial Times.
"If this happens, an astonishing 2 billion people will have joined the ranks of the middle class."
Global inequality, O'Neill says, is declining significantly instead of increasing, as is generally believed — and recent sales figures support his assertion.
Luxury retailer Burberry Group, for example, reports its first-quarter sales rose 22 percent on shipments of autumn and winter goods to wholesale distributors in emerging markets.
Moreover, Burberry's wholesale revenue jumped 45 percent excluding currency movements, and the company added shops in Budapest and the Azerbaijani capital of Baku during the quarter, helping to double emerging-market' revenue.
Many think economies in the BRIC countries may be about to collapse under the combined weight of rising inflation, scarcity of resources, and their own backlashes against globalization,but O'Neill thinks this is highly unlikely.
BRIC is shorthand for Brazil, Russia, India, and China, the biggest emerging economies.
"Some slowing of rapid growth in (emerging) economies is bound to happen," O'Neill notes. "But I believe this negative mood is overstated."
In fact, O'Neill says the report assumes that growth rates in those four countries will be notably slower than they are now, and that the same is true for the other countries that make up the bulk of the exploding global middle.
Even without China and India, O'Neill says that the number of those entering new middle classes would be about 20 million a year.
"Middle-class citizens will appear in their millions in many other parts of Asia, central and eastern Europe, the Middle East, and Latin America," O'Neill notes. "This is a BRIC-driven phenomenon, but the 'next 11' are making their contribution, and other nations will also participate."
The report says that dramatic changes in economic, social, and political trends will probably follow — and some are already beginning to emerge.
For example, Russia is already Europe's biggest car market, outstripping Germany with dramatic first-half sales. Automakers are fleeing Detroit for Moscow and St. Petersburg.
Unfortunately, the report also foresees that "battles about the right way to run global businesses, countries and trading between us all will inevitably grow."
"Meetings of the Group of Eight leading economies will become redundant features of the annual calendar, with a new group driving the world's economic agenda," O'Neill predicts.
"It is also evident that poverty is dropping dramatically around the world."
The report calculates that the number of people living on incomes of less than $1,000 dollars a year ($2.75 a day) has already dropped significantly from half of the world's population in the 1970s to 17 percent by 2000.
"According to our numbers, it could be as low as 6 percent by 2015," O'Neill says.
It's important for everyone in the so-called developed world to be constantly aware that these powerful shifts in global wealth benefit everyone, says O'Neill.
"U.S. exports are indeed growing at close to 20 percent, and it is this that is stopping the housing and credit crunch from driving the U.S. into a deep recession," O'Neill notes. "Aspects of the same phenomenon can be seen in Japan, Germany, and even the U.K."
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