Middle Class To Save Global Economy?
It seems that in yet another classic example of irony, some investors are expressing the sentiment that in order for the global economy to properly recover it will need the help of the middle class. Or at least that’s what a recent article in the Wall Street Journal article suggested while assessing the dismal state of the international economic situation.
More specifically, the article states that it is the emerging middle class markets in nations like Brazil, China, and parts of Africa that may be able to breathe new life into the global economy. Investors are looking at a wide swathe of new social classes and consumer bases—from younger generations of consumers to growing retailers and lenders—to create domestic demand.
Highlighting Brazil, the article cites the influx of 40 million new consumers in the last ten years. These new consumer bases may be able to inspire new investment patterns from firms like the World Financial Group and local private equity firms like Latin America Alternatives. With new consumers come the need for new companies, and with new companies that are growing organically comes economic growth.
Bond and equity investors are also expected to get in on this movement, and many foresee the banking sector in Brazil to increase lending, thus igniting another source of economic growth. As banks begin to loosen their pockets and invest in both large and small companies, these companies will be able to invest more in their own expansion.
This trend does not seem to isolated to Brazil. China too has been taking steps toward increased consumption recently, as have regions of Africa.
Could this trend help to save the global economy, or at least pull investors back from the cliff? The Wall Street Journal article certainly views this strategy in a positive context, although one would have to question whether it is a strategy or just a (happy accident) by-product of over-population and conspicuous consumption.
With a contracting middle class in America, it is certainly hard to imagine the middle class saving the world from its economic woes. But the reality is, on an international spectrum, there is reason to think that emerging middle class markets could be a major boon for global markets. Certainly, the combination of new consumers and new lenders should create verdant conditions for new businesses, which are the engines of economic growth.