Via The Financial Times, a look at emerging market consumers in 2050:

The Philippines and Peru aren’t always the first names to crop up when it comes to analysing the brightest prospects in emerging markets.

But they are two of the surprise performers in our study of the Consumer in 2050, which looks at how the huge rise of the EM middle class is going to affect global spending patterns in the next 40 years.

The Philippines will benefit from massive income per capita growth and a rapidly growing population (to 155m in 2050). It also has a very favourable demographic profile – its median age will only be 32 in 2050 compared with 22 today. By 2050, we project spending on restaurants, recreation, and personal care in the Philippines will be at least 25 times today’s levels.

Peru stands out in Latin America, partly because Brazil is already reasonably well advanced. Discretionary spending in Peru has the potential to grow at more than 7 per cent a year for the next 40 years.

By contrast, much of Europe, including eastern Europe, is plagued by poor demographics. The exception is Turkey where rising incomes, changing tastes and a young population will also see plenty of Turkish consumers hitting the high streets.

These smaller emerging economies, when added together, have the potential to contribute just as much to global consumption as the large population giants of China or India. We calculate that in total, around 2.6bn people – around 40 per cent of today’s population – will join the middle classes by 2050. That means emerging market consumption could make up almost two thirds of global consumption in 2050, compared to around one third today.

We define the middle class as people on incomes of between $3,000 and $15,000 a year (in constant 2000 dollars). Big changes in spending patterns are already evident when individuals move from a very low income (annual wages of less than $1,000 per annum) to a lower-middle income (between $3,000 and $5,000). Not surprisingly, as income grows, food and other basics stop consuming most of the monthly salary, and there is more money for the fun things in life. Once salaries reach about $15,000 a year, discretionary spending amounts to as much as 60 per cent of total consumption.

Demographics are a big part of this. Individuals tend to consume most in their lifetime between the age of 16 and 40 – the period when income levels rise, homes and families are being built, and before they really begin saving for retirement.

Clearly the countries that will drive this change will be China and India, which on their own will add about two thirds to the tally of the world’s middle class over the next 40 years. But even here there are subtle differences between them. On current trends, India’s population will have overtaken China’s by 2050 – at 1.6bn to 1.4bn. More importantly, the demographic profile of the two countries looks very different. The median age in China will rise from 35 today to 49 in 2050 (mainly a legacy of the one-child policy) while India’s will only rise to 37 from 25. Hence India sees the biggest change in consumption patterns of all the countries we consider.

Our estimates could be deemed over-optimistic in the sense that we have assumed that resource constraints won’t restrict production, and there are clearly a number of other influences – climate change, geopolitics, and protectionism, to name but a few – that could mean consumers will have less to spend than we project. But in some senses we are also being conservative – our forecasts for income growth are reasonably cautious.

The macro implications will affect broader asset markets. Initially, at least, many EM consumers will seek cheap, low value added manufacturing goods that will be provided by other emerging markets. That will lead to a big rise in south-south trade.

Second, emerging economies will shift increasingly towards service sector growth, making them less vulnerable to the gyrations in global trade.

Third, the developed world should be able to tap into this rise in EM demand, boosting exports and alleviating global imbalances.

For much of the past 20 years, US consumer was the focus of retailers. But soon we will live in a world where the EM consumer takes centre stage.