A rising global middle class

The following news story by me from Fund Strategy summarises a recent Goldman Sachs paper on the rising middle class.

Another two billion more people could join the global middle class by 2030 according to a new report by Goldman Sachs*. Such an expansion, which would be unprecedented in world history, is based on a definition of middle class as those with incomes of between $6,000 and $30,000 at purchasing power parity (PPP).

At present the group is growing at an unprecedented rate of 70m people a year. Even if China and India are excluded from the growth statistics the figure would be 20m a year.

Overall, there will be a shift to both middle income economies and middle income people. The largest four emerging economies (Brics) and the next 11 down (N11) will dominate.

By 2050 six of the largest seven economies in the world are likely to be emerging with America as the only exception (see table). However, most of them will remain below average in terms of income per head.

The middle three quintiles in terms of country incomes (that is excluding the top and bottom 20 percent) is likely to account for 57 percent of global GDP in PPP terms compared with 31 percent today. In dollar terms the increase will be from 15 percent to 43 percent.

Overall, this trend looks set to lead to a substantial fall in global inequality.

Although inequalities within countries may increase on a global level the world is likely to become more even.

Goldman Sachs acknowledges that its projections may not all materialise. But it regards them as the most likely outcome on the basis of present trends.

* Dominic Wilson and Raluca Dragusanu “The Expanding Middle: the Exploding Middle Class and Falling Global Inequality”. Goldman Sachs Global Economics Paper No: 170.