In a new report, Goldman Sachs economist George Cole says the planet is transitioning from the “Age of commodities” to the “Age of consumer durables,” which will present new opportunities for global investors as this phase change materialises.
The key is the rise of the middle class consumer in emerging markets (EM).
“Over the coming decades the spending power of the EM middle class — the ‘expanding middle’ — will cause tectonic shifts in global consumption,” says Cole. “The next set of structural opportunities in EMs will therefore depend on understanding not just the macro story of growth, but also the micro story of spending and consumption — in other words, understanding what the world wants.”
So, what does the world want?
Historical consumption patterns have the answer, says Cole: consumer durables, a category that includes everything from washing machines to sports cars (see chart at right).
“These dynamics suggest that the EM story depends on more than simply headline growth,” says Cole. “As EM incomes continue to rise in coming decades, the rate of demand growth for high-end consumer durables and services will continue to increase even after the peak of global potential GDP growth has passed.”
Thus, a shift from the “Age of commodities” to the “Age of consumer durables,” as Cole explains in the report:
The overall message is that we are passing from an ‘Age of commodities’ to an ‘Age of consumer durables’ — if commodities have seen the bulk of EM demand pressure over the previous decade, this is likely to shift to consumer durables in the next decade.
For low-end consumer durables, a large part of this shift has occurred. For example, annual EM demand for cars is set to outstrip DMs in the next few years, driven by a three-fold increase in demand from China between the current and previous decade. For higher-end durables such as dishwashers and luxury cars the shift occurs later, with EM demand outpacing DMs by 2030.
Growth in the demand for services remains high and consistent across each decade to 2050, and the EM share of services climbs higher each decade. This is in contrast to the EM shares of demand growth for commodities and low-end durables, which have largely peaked.
“Across the regions, Asia, Latin America, CEEMEA and MENA all see major growth in consumer durables as they move through the current decade, and all hit the income range for peak services demand after 2030,” says Cole. “Africa, with current income levels in the region of peak demand growth for commodities, has the most room to grow.”