The Future of The Middle Class: February 2020

THE FUTURE OF THE MIDDLE CLASS
February 2020
INTRODUCTION
DEVELOPED ECONOMIES: IS THE MIDDLE
CLASS RETREAT SET TO CONTINUE?
EMERGING AND DEVELOPING ECONOMIES:
A NEW MIDDLE CLASS
CONCLUSION
INTRODUCTION
Scope
▪ As part of the Middle Class Retreat megatrend series, this report marks a Disclaimer
departure in our analysis away from a sole focus on developed markets to Much of the information in this
briefing is of a statistical nature and,
explore the future of the middle class in both developed markets and emerging while every attempt has been made
and developing markets. It forecasts future middle class size and spending to ensure accuracy and reliability,
Euromonitor International cannot be
potential, and middle class spending patterns in key markets, as well as held responsible for omissions or
evaluating the impact that Euromonitor’s main risk scenario - a global downturn errors.
Figures in tables and analyses are
- would have on the middle class over a 3-year horizon. calculated from unrounded data and
may not sum. Analyses found in the
▪ Unless otherwise indicated, all values expressed in this report are at constant briefings may not totally reflect the
2018 prices, adjusted for purchasing power parity (PPP) to allow for more companies’ opinions, reader
discretion is advised.
accurate comparisons across countries.
The Middle Class Retreat
megatrend has very broad
relevance to businesses across
a wide range of industries.
Having started in developed
countries, the Middle Class
Retreat megatrend and its
associated trends will
increasingly manifest
themselves in emerging and
developing markets. Insights
into the future of the global
middle class can inform
business strategy to help
brands and marketers capture
opportunities presented by this
megatrend.
© Euromonitor International MEGATRENDS: THE FUTURE OF THE MIDDLE CLASS PASSPORT 3

INTRODUCTION
Key findings
There is no fixed, universal The essence of the middle class is the ability to spend on discretionary items.
definition of the middle class However, there is no universal definition of the middle class, because the
costs of living vary across countries. In this report, the middle class is defined
as comprising households with an annual disposable income of USD45,000-
100,000 in developed economies and of USD15,000-45,000 in emerging and
developing economies.
Middle Class Retreat The Middle Class Retreat megatrend is set to continue across developed
expected to continue in economies, as the share of spending by middle class households in total
developed countries consumer expenditure across developed economies is set to decline from
38% in 2008 to 34% in 2030.
A new, higher-income middle Across emerging and developing markets, households are shifting up the
class rises in emerging and income distribution pyramid, giving rise to a new middle class with a
developing countries household disposable income of USD45,000-100,000, comparable with the
purchasing power of the middle class in developed markets.
China and India are main In India, households on USD45,000-100,000 will increase their share to
drivers of the new, higher- account for 29.8% of total households and 36.4% total spend in 2030. In
income middle class in China in 2030, the share of households on USD15,000-45,000 is set to
emerging markets shrink while households on USD45,000-100,000 will expand to 29.8% of all
households and 38.6% of total consumer expenditure.

INTRODUCTION
Megatrend analysis at Euromonitor International
▪ Euromonitor International’s team of economic, consumer, and industry trend experts have identified 20
megatrends shaping consumer markets. The research team has further predicted the eight most influential
megatrends - highlighted above in bold - to watch and focus on through to 2030. These eight megatrends,
sharing common drivers, have the power to transform and disrupt entire categories.
▪ A megatrend framework enables us to better identify new emerging trends, while also monitoring the more
established long-term megatrends shaping the world. With our access to tens of millions of data points, we
are uniquely positioned to provide a holistic approach to megatrends analysis.

INTRODUCTION
Middle Class Retreat is one of our eight focus megatrends
▪ Back in 2017, we identified the Middle Class Retreat in developed economies as one of our eight focus
megatrends in the context where the middle classes continued to expand in Asia and yet in developed
markets they struggled to maintain the economic position they enjoyed for the last half a century. Some
trends pertaining to this megatrend reflect long-lasting post-recession habits, despite some economic
recovery, as consumers prepare for the next dip. Other trends reflect the shift in the values of middle class
consumers away from conspicuous consumption and towards a greater focus on time, experience and
leisure activities.
▪ To date, our analysis on the Middle Class Retreat has largely focused on developed markets, where middle
class consumers have felt themselves squeezed and income inequality has risen. This report marks a
departure away from a sole focus on developed markets to explore the future of the middle class in both
developed economies and emerging and developing economies.

INTRODUCTION
Who is the middle class?
▪ The essence of the middle class is the ability to spend on Number of B and C Households in Emerging
discretionary items such as household durables, leisure and and Developing Countries 2018/2030
recreation. Additionally, members of the middle class are 800
reasonably confident that they can weather an economic shock
- for example, a spell of unemployment - without falling back 700
into poverty. However, there is no universal definition of the
middle class, because the costs of living vary across countries.
600
▪ To reflect the different costs of living, we define the middle
Number of households (million)

class as comprising of households with an annual disposable
500
income of USD45,000-100,000 in developed economies
(corresponding to the B segment in Euromonitor’s Consumer
400
Spending by Income Bands Model) and of USD15,000-45,000
in emerging and developing economies (corresponding to the
C segment). 300
▪ With this definition, the number of middle class households in

developed countries stood at 176 million in 2018, and is 200
forecast to rise by 6.3% in the period to 2030. In emerging and

developing countries, there were 679 million middle class 100
households in 2018 and this is forecast to rise by 2.7% over
the period through to 2030. The seemingly weaker rate of 0
middle class expansion in emerging and developing countries C B
is due to the fact that households are exiting the C segment to 2018 2030
enter the higher-income B segment, thus giving rise to a new, Source: Euromonitor International’s Consumer Spending by
higher-income middle class in emerging economies. Income Bands Model
Note: USD15,000 ≤ C ≤ USD45,000 ≤ B ≤ USD100,000

INTRODUCTION
Middle Class Retreat - the story so far
▪ Even when they feel themselves being Trends Associated with the Middle Class Retreat Megatrend
squeezed, middle class consumers remain
the foundation and driver of consumer
markets and spending trends.
▪ The Middle Class Retreat megatrend
continues to have very broad relevance to
businesses across a wide range of
industries. It is also a megatrend that Fickle Consumers Trading Up, Trading Down
overlaps and converges with other
megatrends such as Experience More,
Premiumisation, Shopping Reinvented and
Shifting Market Frontiers.
▪ Although it is a megatrend that started in
developed countries, the Middle Class
Retreat and its associated trends will
Glorified Frugality The Sharing Middle
increasingly manifest themselves in, and
apply to, emerging and developing markets.
Just like their counterparts in developed
markets, middle class consumers are also
embracing the sharing economy and
searching for value among other things,
even when they are expanding as well as
enjoying rising incomes. From Having to Being Thrill of the Deal

INTRODUCTION
EMERGING AND DEVELOPING ECONOMIES: A
NEW MIDDLE CLASS
CONCLUSION
DEVELOPED ECONOMIES: IS THE MIDDLE CLASS RETREAT SET TO CONTINUE?
Stagnant middle class spending growth
▪ In the period from 2009 to 2018, total real Average Annual Real Growth in per Household
spending by middle class households (B segment) Consumer Spending in Developed Countries
in developed economies increased by just 0.9% 2009-2018
annually, compared to 1.3% total real spending
growth and 1.5% real growth registered by the A
A
segment.
▪ In per household terms, middle class real
consumer spending growth was even weaker, at B
just 0.2% annually during the 2009-2018 period.
▪ The stagnation in middle class consumer
expenditure was in part caused by the negative C
wage growth and weak labour market conditions
following the 2008-2009 global financial crisis.
▪ However, the weak, if not stagnant, income and D
spending growth that persists long after the end of

the 2008-2009 global financial crisis implies that
there are long-term factors at play. These include E
slow increases in labour productivity and a

declining share of wages in national income that -0.4 -0.2 0 0.2 0.4 0.6 0.8
have impeded - and will continue to impede - the Average real growth, % per year
real growth of middle class income and Source: Euromonitor’s Consumer Spending by Income Bands Model
expenditure in developed economies. Note: E ≤ USD5,000 ≤ D ≤ USD15,000 ≤ C ≤ USD45,000 ≤ B ≤
USD100,000 ≤ A

Low productivity growth constrains middle class income growth
▪ Household income growth tends to have a strong Average Annual Labour Productivity Growth in
positive correlation to labour productivity growth, which Developed Economies 2009-2018
has been weak in developed countries due to a 3.0
number of factors:
▪ Population ageing may have reduced annual labour
Average annual growth in output per worker, %

productivity growth in developed economies by around
0.2-0.5 percentage points according to research from 2.0
the IMF and central banks.
▪ Worsening global trade tensions and populist policies
such as immigration restrictions are also likely to
significantly raise the costs of doing business, 1.0
reducing productivity-enhancing investments and
lowering the efficiency of production chains.
▪ There may still be some negative factors lingering
from the 2008-2009 global financial crisis, such as the 0.0
persistent effects of tighter credit conditions on

business investment and the misallocation of capital
and labour across firms.
▪ Offshoring and automation further constrain income -1.0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
gains as this reduces labour demand and adversely
Output per Worker Growth Trendline
impacts low- and mid-skilled jobs in developed
markets. Source: Euromonitor International from International Labour Organization
(ILO)/Eurostat/national statistics

Middle class retreat is expected to continue
▪ As factors constraining labour productivity growth Average Annual Real Growth in per Household
are expected to persist, middle class income gains Consumer Spending in Developed Countries
are likely to continue to stagnate, thus causing 2019-2030
middle class households in developed countries to
hold back their spending:
A
▪ Total real spending by the middle class (the B
income segment) is projected to increase by 0.9%
per year on average between 2019 and 2030
B
(compared to total real household spending growth
of 1.5% per year on average), for a total increase
of less than 12%.
C
▪ On a per household basis, annual real growth in
spending per middle class household is expected
to improve slightly to 0.4% (compared to 1.0% D
annual growth for all households), for a cumulative
increase of less than 5.0% over 2019-2030.
▪ Nevertheless, the Middle Class Retreat megatrend E
is set to continue across developed economies, as
the share of spending by middle class households -0.1 0.0 0.1 0.2 0.3 0.4 0.5 0.6
in total consumer expenditure across developed Average real growth, % per year
economies is set to decline from 38% in 2008 to Source: Euromonitor’s Consumer Spending by Income Bands Model
34% in 2030. Note: E ≤ USD5,000 ≤ D ≤ USD15,000 ≤ C ≤ USD45,000 USD ≤ B ≤
USD100,000 ≤ A

A global downturn to exacerbate the middle class retreat
▪ A global downturn would reduce annual real Average Annual Growth in Consumer Spending by Income
consumer spending growth in developed Segment 2020-2022
economies from a baseline forecast of 1.6%
to 0.9% in the period from 2020 to 2022. Real A Global Downturn
spending by the middle class in developed
countries (the B income segment) is expected A Baseline
to decline by 0.4 percentage points annually
to 0.7% as a result of a global downturn.
B Global Downturn
▪ This relatively modest impact on the B
income segment mainly reflects a reallocation B Baseline
of spending away from higher-income
segments to lower-income segments, as C Global Downturn
households will be shifted down the income
pyramid in the scenario of a global downturn.
C Baseline
▪ The average annual growth in highest-
earning households (the A segment) would Total Spending Global
Downturn
decline by 1.9 percentage points in a global
downturn, relative to the baseline projection.
Total Spending Baseline
Meanwhile, the lower-income C segment will
see their real annual spending growth 0.0 0.5 1.0 1.5 2.0 2.5 3.0
accelerate from 0.1% in the baseline scenario Average annual real growth, %
to 1.6% in a global downturn. Source: Euromonitor’s Consumer Spending by Income Bands Model
Note: E ≤ USD5,000 ≤ D ≤ USD15,000 ≤ C ≤ USD45,000 USD ≤ B ≤ USD100,000 ≤ A

Consider both size and share of spend when targeting middle class
Top 10 Countries with the Largest Number Top 10 Countries with the Largest Share of
of Middle Class Households 2018 Middle Class in Total Consumer Spending 2018
Slovakia
USA
South Korea
Japan
Finland
Germany
France Belgium
United Kingdom United Kingdom
Italy France
South Korea Austria

Spain Germany
Canada
Netherlands
Australia
Italy
0 10 20 30 40 50
0 20 40 60 80
Million households % of total consumer expenditure
Source: Euromonitor International’s Consumer Spending by Income Bands Model
Both size and share of spending need to be considered when adopting a middle class strategy. In absolute
terms, the US has the largest middle class - with 41 million households in 2018. However, the country’s
middle class accounted for a third (32.2%) of all households and only a quarter (25.0%) of total consumer
expenditure.

US: Weight of the middle class in total spending is modest
Share in Category Spending of Bottom, Middle and Top

Income Households in the US 2018
Communications
Food & Non-Alc Bevs
Health Gds & Med Servs
Transport
Alcoholic Bevs & Tobacco
Housing
Household Gds & Servs
Clothing & Footwear
Leisure & Recreation
Hotels & Catering
Miscellaneous Gds & Servs
Education
0% 50% 100%
Share of category spend
Bottom Middle Top
Source: Euromonitor Internationall’s Consumer Spending by Income Bands Model
▪ The US middle class, albeit large in absolute terms, is not a dominant force of consumption due to its low
share of spending across categories. In 2030, middle class households’ share in the country’s total
consumption is set to shrink further to 22.8%, from the already modest share of 25.0% in 2018.
▪ Already a big spending category, absorbing one in four US dollars (24.7%) spent by middle class
households in 2018, Health Goods and Medical Services is set to claim an even bigger share (25.2%) of
the middle class wallet in 2030. The only other category set to claim a greater share of middle class wallet
is the essential, Housing, which consequently eats into middle class discretionary spending capacity.

The continuing retreat of the US middle class
Middle Class Spending Growth by Category ▪ While the share of the US middle class in total
in the US 2019-2030 consumer expenditure is set to decline across all
categories through to 2030, Transport and
Health Gds & Medical Servs Communications will be the two categories with the
Housing biggest declines (27.0% to 24.7% and 30.7% to
28.3% of total category spend, respectively).
Communications
▪ Persistently high and rising income inequality is one
Household Gds & Services of the reasons behind the continuing Middle Class
Retreat in the US, but changing consumer values
Hotels & Catering
are also driving the middle class to reprioritise (for
Transport example, by focusing less on the acquisition of
material things), and thereby cut back their
Education
spending.
Alc Bevs & Tobacco ▪ In the period through to 2030, total spending by
middle class households in the US is set to grow by
11.0% in real terms, equivalent to a modest 0.9%
Food & Non-Alc Bevs per year on average. Health Goods and Medical
Misc Gds & Servs
Services will be the fastest growing category, where
middle class spending is set to rise by 13.0% in real
Clothing & Footwear terms (1.1% per year on average), while Clothing
0 5 10 15
and Footwear will record the weakest growth, at only
% growth 2019-2030 6.3% in real terms for the entire period to 2030
Source: Euromonitor’s Consumer Spending by Income Bands Model (0.5% per year on average).

Etsy: Winning hearts and wallets of US middle class consumers
Etsy is a peer-to-peer retail platform launched

in New York in 2005.
Etsy is popular as a place to buy goods made

from recycled and upcycled materials, along
with less expensive or more unusual versions
of mass-produced items. On Etsy, sellers can
make some extra money by selling their
craftsmanship and buyers can purchase
authentic and unique items for less while also
enjoying a special shopping experience that
connects them directly with the creative
entrepreneur.
Key takeaways
Etsy’s business model was built on the
recognition of consumer fatigue of mass-
In 2018, Etsy’s value sales in the US reached produced goods and middle class consumers’
USD558 million, a rise from USD241 million in 2013. need to stretch their limited resources. Its
success points towards the growing popularity
of frugality and authenticity.

Japan: The middle class forms a substantial consumer base…
Share in Category Spending of Bottom, Middle and Top

Income Households in Japan 2018
Communications
Hotels & Catering
Transport
Food & Non-Alc Bevs
Alc Bevs & Tobacco
Misc Gds & Servs
Clothing & Footwear
Housing
Household Gds & Services
Education
0% 50% 100%
Bottom Middle Top
▪ The middle class in Japan forms a substantial consumer base. With over 22 million households (the
second largest in absolute terms across all developed economies), the Japanese middle class accounted
for 40.8% of total households and 44.6% of consumer expenditure in the country.
▪ However, the Japanese middle class has relatively weak discretionary spending power due to high costs of
living in the country. The essentials of food, non-alcoholic beverages and housing absorbed 40.4% of
middle class household budget in 2018, and this share is set to remain stubbornly high through to 2030.

…but is ageing and shrinking
Middle Class Spending Growth by Category ▪ Middle class spending growth in Japan is anaemic,
in Japan 2019-2030 if not static. In the 2019-2030 period, total spending
by households with an annual disposable income
Health Gds & Medical Servs
of USD45,000-100,000 (constant, PPP) is set to
Communications rise by 2.1% in real terms, translating to a
negligible 0.2% per year on average.
Food & Non-Alc Bevs
▪ Behind this lack of middle class spending growth is
Misc Gds & Servs the retreat of the middle class in Japan. In 2030,
Hotels & Catering
the country’s middle class is expected to account
for 39.7% of households (down from 40.8% in
Transport 2018), while both the top and bottom segments are
Education
set to expand as a proportion of total households.
The share of Japan’s middle class in total
Housing consumer expenditure is also shrinking, from
44.6% in 2018 to 43.1% in 2030.
▪ Population ageing is a big factor determining the
Alc Bevs & Tobacco
spending patterns of all income segments in
Clothing & Footwear Japan, the middle class included. Between 2018
and 2030, real spending by middle-income
households on the Health Goods and Medical
-15.0 -10.0 -5.0 0.0 5.0 10.0 15.0 Services category is set to increase by 14.8%
% growth 2019-2030 (equivalent to 1.2% per year on average), which is
Source: Euromonitor’s Consumer Spending by Income Bands Model noteworthy in the Japanese context.

Shiseido: Tapping into Japan’s ageing middle class
Shiseido has a global presence, but its domestic

Japanese market is hugely important, as it
generated a massive 44% of Shiseido’s value
sales in 2018.
Shiseido is tapping into the ageing population in

Japan where many consumers are willing to buy
the best products they can afford to maintain a
youthful complexion. Alongside its premium
anti-agers, Shiseido also offers a device called
Optune, which is leased to customers for a
monthly fee of JPY10,000 (around USD90).
Using a smartphone app, Optune analyses a
user’s skin, factoring in other conditions such as
sleep, mood, and the weather, to provide
personalised skin care.
Key takeaways
In 2018, Shiseido captured a 24.4% share of the Even though Shiseido is already widely
premium anti-agers market in Japan, an increase recognised as a premium beauty brand, it
from a market share of 17.1% in 2013. continues to invest heavily in R&D and is taking
premiumisation to the next level by leveraging
technology to differentiate itself from its rivals.

Germany: The middle class accounts for one in two dollars spent
Share in Category Spending of Bottom,

Middle and Top Income Households in Japan 2018
Housing
Alc Bevs & Tobacco
Hotels & Catering
Communications
Food & Non-Alc Bevs
Clothing & Footwear
Misc Gds & Servs
Transport
Education
0% 50% 100%
Bottom Middle Top
▪ In 2018, the middle class, comprising of 45.7% total households in Germany, accounted for one in two US
dollars spent (48.6% of the country’s total consumer expenditure).
▪ As well as being a substantial consumption base, the German middle class enjoys relatively strong
discretionary spending power. In 2018, the essentials of food, non-alcoholic beverages and housing
absorbed 34.4% of middle class household budget, leaving nearly two thirds of household budget available
for discretionary spending.

German middle class - bigger in size but smaller in share of spend
Middle Class Spending Growth by Category in ▪ In 2030, the middle class in Germany is expected
Germany 2019-2030 to expand in size to account for 46.8% of total
Health Gds & Medical Servs households, up from 45.7% in 2018. However, its
share in the country’s total consumer expenditure
Housing is set to shrink slightly from 48.6% in 2018 to
Communications
47.3% in 2030.
▪ Over the 2019-2030 period, real spending by
Alc Bevs & Tobacco
Germany’s middle-income households is set to rise
Food & Non-Alc Bevs by 10.6%, equivalent to 0.9% per year on average.
In comparison, top-income households - those
Misc Gds & Servs earning an annual disposable income over
Hotels & Catering
USD100,000 - are expected to increase their
spending at a much more robust rate of 36.1%
Leisure & Recreation during the same period (averaging a healthy 3.0%
per year).
Transport
▪ Part of the reason for the relatively modest
Household Gds & Services spending increase by Germany’s middle class is
Clothing & Footwear
the rising cost of living. Middle class households’
spending on housing and food and non-alcoholic
Education beverages is rising faster than their overall
0.0 4.0 8.0 12.0 16.0
spending for the 2019-2030 period, with housing
% growth 2019-2030 being the second fastest growing spending
Source: Euromonitor’s Consumer Spending by Income Bands Model category for middle class households.

Miele: Targeting Germany’s “sharing middle”
Miele Group captured 38.5% of Germany’s home laundry appliances market in 2019, up from
34.5% in 2017, though this was still below the market share of 53.6% it had in 2014.
▪ In Germany, Miele targets the “sharing middle” by ▪ This arrangement allows German middle class
introducing a rental model called BlueHorizon for consumers to enjoy the premium quality of Miele
washing machines. Users are charged based on washing machines with no upfront costs, as well as
their usage, from pay per wash for light users to a a convenient supply of detergent and other
flat fee of EUR49.99 per month for households with consumables over the life of the contract, which
high laundry needs of up to 250 washes per year. also includes servicing and repairs.

INTRODUCTION
NEW MIDDLE CLASS
CONCLUSION
EMERGING AND DEVELOPING ECONOMIES: A NEW MIDDLE CLASS
An expanding middle class…
▪ On the back of continued economic growth, the Real Spending Growth by Income Segment in Emerging
middle class in many emerging and developing and Developing Markets 2009-2018
countries (the C income segment) has been
expanding healthily both in size and spending
A
capacity:
▪ During the period of 2009-2018, the middle class in
emerging markets saw their household number rise
B
by 3.4% per year on average (compared to the
1.9% average annual growth in total number of
households) and their real spending per household
increase by 1.4% per year on average. C
▪ Over the same period, real spending by middle
class households in emerging markets grew by an
average annual rate of 4.8% (comparable to total D
consumer spending annual growth of 4.9%).
▪ As of 2018, there were 679 million middle class
households (those on USD15,000-45,000 per
E
annum) across emerging and developing
economies, spending a total USD17.2 trillion (after
PPP adjustments). This is significantly greater than -4.0 -2.0 0.0 2.0 4.0 6.0 8.0 10.0
Average annual real growth, %
the USD11.8 trillion spent by the 176 million middle
class households in developed markets (those on Source: Euromonitor’s Consumer Spending by Income Bands Model
Note: E ≤ USD5,000 ≤ D ≤ USD15,000 ≤ C ≤ USD45,000 USD ≤ B ≤
USD45,000-100,000 per annum). USD100,000 ≤ A

…and the rise of a new middle class with higher incomes
▪ The 2009-2018 period also saw the rise of a new middle Top 10 Emerging Countries with the Largest
class comprising households with annual disposable Number of Households in the B Segment in 2018
income comparable to that of middle class households in
China
developed economies (the B income segment):
▪ Real household spending for the B segment increased by India
a robust 8.0% annually during the 2009-2018 period to
Russia
reach USD10.7 trillion (after PPP adjustments) in 2018.
▪ The rise in real spending by the B segment is almost Brazil
entirely based on an increase in the number of households
belonging to this higher-income segment, with little or no Mexico
growth in per household spending. In fact, over the 2009- Indonesia

2018 period, real spending per household in the B segment
registered 0% growth. This suggests that the rise of the Turkey
new, higher-income middle class in emerging and
Iran
developing economies has been mainly based on the
transition of lower-income households into higher-income Poland
segments, rather than increasing income inequality.
Egypt
▪ For consumer goods and services companies, the
emergence and growth of this richer middle class in 0 20,000 40,000 60,000 80,000 100,000
emerging economies opens up markets for more premium Number of households in the B segment (‘000)
products and services relative to previous cheaper but Source: Euromonitor’s Consumer Spending by Income Bands Model
often lower quality products and services. Note: E ≤ USD5,000 ≤ D ≤ USD15,000 ≤ C ≤ USD45,000 USD ≤ B ≤
USD100,000 ≤ A

The switch to a higher-income middle class is set to continue…
▪ The period through to 2030 is expected to see a Annual Real Spending Growth by Income Segment
continuation of households shifting upwards on the in Emerging and Developing Countries 2019-2030
income distribution pyramid, underpinning the
growth of a new, higher-income middle class in
emerging and developing countries. A
▪ The number of households in the B segment

across emerging and developing countries is set to
rise by 5.6% per year on average during the 2019- B
2030 period, far exceeding the average annual

growth of 1.2% expected for the total number of
households. Their total spending is forecast to rise C
at an average 6.9% per year in real terms in the
period through to 2030, outstripping the 1.9%
average annual real spending growth forecast for D
the C segment.
▪ Real spending by households in the B segment in
emerging and developing countries is expected to E
reach USD23.9 trillion (in PPP constant 2018
prices) in 2030, exceeding total real spending by
-4.0 -2.0 0.0 2.0 4.0 6.0 8.0 10.0
households in the C segment in emerging and
Average annual growth, %
developing economies and also total real spending
Source: Euromonitor’s Consumer Spending by Income Bands Model
by their counterparts in the B segment in Note: E ≤ USD5,000 ≤ D ≤ USD15,000 ≤ C ≤ USD45,000 ≤ B ≤
developed economies. USD100,000 ≤ A

…driven mainly by China and India
▪ The main factor driving the real growth of spending Annual Real Growth in Output per
by middle class households in emerging and Worker 2009-2018
developing countries has been the continuing trend 7.0
towards economic convergence with developed
economies. Between 2009 and 2018, growth in 6.0
labour productivity was averaging 3.8% per year,
compared to just 0.8% in developed economies. 5.0
▪ The growth in emerging markets’ labour
Average annual growth, %

productivity has mainly come from China and India, 4.0
where economic expansion has been robust. Over
the next 10 years, despite the projected slowdown 3.0
in China’s per capita real GDP annual growth
towards 4.5-5.5% by the end of the decade, China 2.0
and India are expected to continue to be the key
drivers of labour productivity growth, income gains, 1.0
and middle class expansion in emerging and
developing economies. 0.0
▪ Outside the Asia Pacific region, economic
convergence has been more limited. Through to -1.0
2030, growth in labour productivity in many 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
emerging countries outside Asia Pacific is forecast
Developed Economies Emerging and Developing Economies
to be weak, if not declining close to the growth
Source: Euromonitor International from International Labour Organization
rates expected in developed economies. (ILO)/Eurostat/national statistics

A global downturn to shift households down the income pyramid
▪ A global downturn starting in 2020 would reduce Average Annual Growth in Consumer Spending by
annual real consumer spending growth in emerging Income Segment 2020-2022
and developing economies from 4.8% in the baseline
projection to 3.5% for the whole period 2020-2022. A Global Downturn
▪ Real spending growth by households in the middle- A Baseline

income C segment is expected to deteriorate only
very slightly over 2020-2022 in a global downturn, B Global Downturn
whereas other income segments are expected to see

B Baseline
significant shifts. The B segment, representing the
new, higher-income middle class in emerging and C Global Downturn
developing countries, will see their real spending
C Baseline
growth decline by three percentage points on
average per year from the baseline projection for the D Global Downturn
same period. Nevertheless, the B segment will still
display relatively strong 4.6% average annual growth D Baseline
in real spending even in a global downturn scenario.
Total Spending Global Downturn
▪ Some previously middle-income households (C
segment) would also shift into lower-income status in Total Spending Baseline
the scenario of a global downturn, leading to an -2.0 0.0 2.0 4.0 6.0 8.0 10.0
average annual increase of 2.7 percentage points in Average annual growth, %
the D segment’s real spending growth over 2020-
Source: Euromonitor’s Consumer Spending by Income Bands Model
2022 relative to the baseline. Note: E ≤ USD5,000 ≤ D ≤ USD15,000 ≤ C ≤ USD45,000 USD ≤ B ≤
USD100,000 ≤ A

India: Households to join the new, higher-income middle class
Share in Category Spending of Bottom, Middle and

Top Income Households in India 2018
Alc Bevs & Tobacco
Housing
Food & Non-Alc Bevs
Clothing & Footwear
Misc Gds & Servs
Education
Hotels & Catering
Communications
Transport
0% 20% 40% 60% 80% 100%
Bottom Middle Top
▪ Many Indian middle class households are shifting upwards to join the new, higher-income middle class. In
2018, there were 215 million households with an annual disposable income of USD15,000-45,000, which
together accounted for 45.4% of total households and 55.2% of total consumer expenditure. In 2030, the
share of households on USD15,000-45,000 will shrink to 39.6% of total households and 41.6% of total
spending, while households on USD45,000-100,000 will increase their share from 18.1% of total
households (and 20.5% of total spending) in 2018 to 29.8% of total households (and 36.4% total spend) in
2030.

The Indian middle class is confident and aspiring
Middle Class Spending Growth by Category in India ▪ On the back of a robust economy, India’s middle
2019-2030 class is set to increase its spending significantly. In
Health Gds & Med
the 2019-2030 period, real spending by households
Services with an annual disposable income of USD15,000-
Misc Gds & Services 45,000 is set to rise by 113%, equivalent to a very
healthy 10.3% per year. Companies targeting India’s
Education
middle class households can expect a market size of
Leisure & Recreation USD5.6 trillion (in constant, PPP prices) by 2030.
▪ Alongside the robust spending growth of middle
Housing
class households, the new, higher-income middle
Alc Bevs & Tobacco class (comprising of households on USD45,000-
Household Gds & 100,000) is expected to see its total real spending
Services rise by 234% over 2019-2030, equivalent to average
Communications annual growth of 21.3%. In 2030, India’s new,
Transport
higher-income middle class will be a market worth
USD4.8 trillion (in constant, PPP prices).
Hotels & Catering
▪ The Indian middle class is confident, aspiring, and
Clothing & Footwear health aware, which is why such consumers are set
to increase their spending the most on categories
Food & Non-Alc Bevs
such as Health Goods and Medical Services,
0 50 100 150 Miscellaneous Goods and Services (a category that
% growth 2019-2030 includes luxury goods), and Education in the period
Source: Euromonitor’s Consumer Spending by Income Bands Model through to 2030.

Vistara Airlines: Bringing premium economy class to India
A joint venture between Singapore Airlines and

Tata Group, Vistara Airlines was the first to
introduce a premium economy class to the
Indian domestic air market.
Food and service are among the key selling

points for Vistara, with a modern, “fusion” take
on Indian cuisine for its premium economy
passengers. The company’s connection with the
Tata Group allows the frequent flier programme
to potentially interact with a range of brands,
such as Jaguar and Starbucks. While the airline
has yet to make a profit, it has already become
the sixth largest domestic carrier while
eschewing a low-cost strategy.
Indian travellers are expected to take nearly 700 Key takeaways

million domestic leisure trips by air by 2024, up While middle class and affluent consumers in
from less than 76 million in 2014. India are still price-conscious, there is real
demand for higher-tier service and product
offerings.

China: Share of spending by the new middle class to balloon
Share in Category Spending of Bottom, Middle and

Top Income Households in China 2018
Food & Non-Alc Bevs
Alc Bevs & Tobacco
Housing
Health Gds & Med Services
Communications
Clothing & Footwear
Misc Gds & Services
Hotels & Catering
Transport
Education
0% 50% 100%
Bottom Middle Top
▪ In China in 2018, the 215 million middle class households (on USD15,000-45,000) accounted for 45.4% of
all households and 44.1% of total consumer expenditure, making them a substantial consumption base.
However, this base is retreating as households shift upwards to form a new middle class that is gradually
converging with developed markets’ middle class. In 2030, the share of households on USD15,000-45,000
is set to shrink to 39.6% of all households, accounting for only 29.4% of total consumer expenditure while
households on USD45,000-100,000 will expand to 29.8% of all households and 38.6% of total spend.

The Chinese middle class: older and richer than ever
▪ Just like the rest of the population, which is ageing

rapidly, China’s middle class is ageing and is thus
prioritising spending on Health Goods and Medical
Services. Other spending categories such as
Transport, Leisure and Recreation, and Hotels and
Catering are also expected to enjoy robust middle
class spending growth as a result of ageing and
rising middle class purchasing power. Conversely,
Alcoholic Beverages and Tobacco, and Clothing
and Footwear will be the two weakest spending
categories for the Chinese middle class.
▪ In 2030, the middle class in China will be a market
worth USD5.2 trillion (constant PPP) in terms of
total expenditure (up from USD4.3 trillion in
constant PPP prices in 2018). The new, higher-
income middle class (represented by the B
segment will overtake the C segment middle class
to become a considerably larger market, worth
USD6.8 trillion (constant PPP) in total expenditure
Source: Euromonitor’s Consumer Spending by Income Bands Model in 2030, a massive 128% real increase from
USD3.0 trillion (constant PPP) in 2018.

Ctrip: Catering to the silver middle class tourist in China
Travelling is of interest to many middle class Chinese

silver consumers, who want more from life than just
staying at home or taking care of their grandchildren.
Realising the opportunities brought about by China’s

ageing population and the growing travel demand of
Chinese consumers aged 65+, Ctrip, one of the
leading online travel agencies in China, has designed
packages, group tours and high-end travel options
for Chinese seniors who are willing to spend on
travelling in comfort. The tours often include door-to-
door transportation and are less heavy in terms of
sightseeing schedule. The company also offers
packages such as “Mom and Dad Relaxation Tours”
to market to adult children who want to buy trips as
gifts for their elderly parents.
Key takeaways:
The number of travellers aged 65+ in China ▪ Product customisation to meet the specific needs of
is expected to reach 51 million in 2024, up older consumers will help to win the silver market.
from 41 million in 2019. ▪ Marketing to seniors’ adult children can also be a
very effective channel to target silver consumers.

INTRODUCTION
NEW MIDDLE CLASS
CONCLUSION
CONCLUSION
Middle Class Retreat: What does the future hold?
The shrinking middle is not always a bad thing. While in many countries, this is due to rising
income inequality inhibiting the expansion of the middle class, in many others it is due to
households moving upwards on the income distribution pyramid.
In developed countries, the Middle Class Retreat is expected to continue over the next
decade and beyond. From a macroeconomic perspective, population ageing, automation
and offshoring trends are constraining labour productivity growth, with negative impact on
income gains for the middle class in developed economies.
In emerging and developing countries, the middle class does not seem to expand as
robustly as expected, but behind this is the emergence of a new, richer middle class with an
income level comparable to that in developed economies. China and India are the main
drivers of this new, higher-income middle class.
In the scenario of a global downturn - Euromonitor’s main risk scenario - middle class
households are expected to be shifted down the income distribution pyramid, thus
exacerbating the Middle Class Retreat (and associated consumer trends) in both developed
and developing economies.

CONCLUSION
Strategies for success
Don’t overlook the middle class, despite its retreat

Even as the share of middle class spending in total expenditure is shrinking in developed countries, middle
class consumers still offer great potential, especially if companies can respond to new consumer
behaviours such as renting, sharing, reselling, deal hunting and prioritising spending on experiences.
Aim high in emerging and developing economies

Although the purchasing power of the middle class in emerging and developing countries is still weaker
than that of their counterparts in developed markets, in key emerging economies such as India and China,
the middle class is not only expanding but is also confident, aspiring and enjoying robust income gains.
Focus on what middle class values and priorities

Attention needs to be paid to the changing patterns of middle class consumer spending. In both developed
and emerging markets, middle class consumers increasingly prioritise spending on Health Goods and
Medical Services, making this a category with significant potential.

FOR FURTHER INSIGHT PLEASE CONTACT
An Hodgson
Head of Income and Expenditure
an.hodgson@euromonitor.com
Daniel Solomon
Senior Economist
daniel.solomon@euromonitor.com
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THE FUTURE OF THE MIDDLE CLASS

© Euromonitor International MEGATRENDS: THE FUTURE OF THE MIDDLE CLASS PASSPORT 3

© Euromonitor International MEGATRENDS: THE FUTURE OF THE MIDDLE CLASS PASSPORT 4

Megatrend analysis at Euromonitor International

© Euromonitor International MEGATRENDS: THE FUTURE OF THE MIDDLE CLASS PASSPORT 5

Middle Class Retreat is one of our eight focus megatrends

© Euromonitor International MEGATRENDS: THE FUTURE OF THE MIDDLE CLASS PASSPORT 6

Who is the middle class?

Number of households (million)

▪ With this definition, the number of middle class households in

forecast to rise by 6.3% in the period to 2030. In emerging and

© Euromonitor International MEGATRENDS: THE FUTURE OF THE MIDDLE CLASS PASSPORT 7

Middle Class Retreat - the story so far

© Euromonitor International MEGATRENDS: THE FUTURE OF THE MIDDLE CLASS PASSPORT 8

Stagnant middle class spending growth

spending growth that persists long after the end of

slow increases in labour productivity and a

© Euromonitor International MEGATRENDS: THE FUTURE OF THE MIDDLE CLASS PASSPORT 10

Low productivity growth constrains middle class income growth

Average annual growth in output per worker, %

persistent effects of tighter credit conditions on

© Euromonitor International MEGATRENDS: THE FUTURE OF THE MIDDLE CLASS PASSPORT 11

Middle class retreat is expected to continue

© Euromonitor International MEGATRENDS: THE FUTURE OF THE MIDDLE CLASS PASSPORT 12

A global downturn to exacerbate the middle class retreat

© Euromonitor International MEGATRENDS: THE FUTURE OF THE MIDDLE CLASS PASSPORT 13

United Kingdom United Kingdom

South Korea Austria

Source: Euromonitor International’s Consumer Spending by Income Bands Model

© Euromonitor International MEGATRENDS: THE FUTURE OF THE MIDDLE CLASS PASSPORT 14

US: Weight of the middle class in total spending is modest

Share in Category Spending of Bottom, Middle and Top

Source: Euromonitor Internationall’s Consumer Spending by Income Bands Model

© Euromonitor International MEGATRENDS: THE FUTURE OF THE MIDDLE CLASS PASSPORT 15

The continuing retreat of the US middle class

© Euromonitor International MEGATRENDS: THE FUTURE OF THE MIDDLE CLASS PASSPORT 16

Etsy: Winning hearts and wallets of US middle class consumers

Etsy is a peer-to-peer retail platform launched

Etsy is popular as a place to buy goods made

© Euromonitor International MEGATRENDS: THE FUTURE OF THE MIDDLE CLASS PASSPORT 17

Japan: The middle class forms a substantial consumer base…

Share in Category Spending of Bottom, Middle and Top

Source: Euromonitor International’s Consumer Spending by Income Bands Model

© Euromonitor International MEGATRENDS: THE FUTURE OF THE MIDDLE CLASS PASSPORT 18

…but is ageing and shrinking

© Euromonitor International MEGATRENDS: THE FUTURE OF THE MIDDLE CLASS PASSPORT 19

Shiseido: Tapping into Japan’s ageing middle class

Shiseido has a global presence, but its domestic

Shiseido is tapping into the ageing population in

© Euromonitor International MEGATRENDS: THE FUTURE OF THE MIDDLE CLASS PASSPORT 20

Share in Category Spending of Bottom,

Source: Euromonitor International’s Consumer Spending by Income Bands Model

© Euromonitor International MEGATRENDS: THE FUTURE OF THE MIDDLE CLASS PASSPORT 21

German middle class - bigger in size but smaller in share of spend

© Euromonitor International MEGATRENDS: THE FUTURE OF THE MIDDLE CLASS PASSPORT 22

Miele: Targeting Germany’s “sharing middle”

© Euromonitor International MEGATRENDS: THE FUTURE OF THE MIDDLE CLASS PASSPORT 23

An expanding middle class…

© Euromonitor International MEGATRENDS: THE FUTURE OF THE MIDDLE CLASS PASSPORT 25

…and the rise of a new middle class with higher incomes

growth in per household spending. In fact, over the 2009- Indonesia

© Euromonitor International MEGATRENDS: THE FUTURE OF THE MIDDLE CLASS PASSPORT 26

The switch to a higher-income middle class is set to continue…