Consumer spending is not just a vital part of a country’s GDP but also signifies the ability of people with disposable incomes to purchase commodities from varying item groups. Necessities such as food items often have inelastic demand and rising food inflation reduces the ability to utilise incomes for other purpose rather than a decline in food demand. A rise in demand for goods such as automobiles, televisions and computers depicts the creation of a middle class in the society.
A report by Euromonitor Global Market Research compares consumer attitudes in Asia to those in the US and Europe. It classifies Asian consumer demand into two types. The first one involves emulating the west in terms of embracing the western lifestyle and purchasing foreign brands. The second classification incorporates following a divergent path as rising nationalist sentiments lead to a rejection of western brands and establishing and promoting domestic goods. The analysis goes on to mention that economies based on consumer spending, for example those of the west, are less vulnerable to any disturbance in consumer demand than an economic system that rests on exports and mentions China in this regard.
One might not confine to the view expressed here as evidence from the past few years has shown otherwise. This report was written in 2007, before the worst global financial crisis, since the time of the Great Depression, took the global economy and more specifically the western economies by storm.
With US unemployment rate currently lingering at around nine per cent, consumer demand has drastically fallen since 2008. Consumer spending comprises approximately two-third of economic activity in the US. Inflationary pressures have further aggravated the issue and have adversely affected consumer demand in branded and luxury items. Strong Asian economies, though affected by the global economic meltdown have responded in a much better way. With Asian giants coming up with their own global brands such as Hyundai, Samsung and Acer, consumer preferences in high-end commodities and specifically those in the technology sector, have shifted towards them.
It goes without saying that poverty, lack of education and absence of healthcare facilities still plague many Asian nations; however the emergence of a middle class has played a significant role in generating consumer demand. Countries with huge populations, including India, China and Pakistan are an ideal destination for western brands and franchises to advertise their products and extract substantial profits. It is true that many Asian economies have based their growth on export-oriented policies; contemporary trends depict an increased dependence of western brands on Asian populations too.
Coming to talk of Pakistan, the country has been facing double digit inflation for three long years and rising food prices are playing havoc with people from all sections of society. As mentioned before, the rise of a middle class with enhanced incomes contributes immensely in allowing extravagant uses of disposable incomes. According to the Economic Survey of Pakistan 2010-2011, production of television sets rose by 28.6 per cent and that for automobiles enhanced by 14.6 per cent. Any demand for such goods seems unlikely given exorbitant food inflation and the energy shortage Pakistan is currently facing. However, Pakistan, along with other developing countries, continues to depict better consumer demand than many western economies. Policy makers should not let go of this opportunity which has dawned upon the entire region. China is currently following the path of excessive urbanisation with a goal to bring majority of its population into urban centers. Facilitating the emergence of our middle class is the call of the hour to trigger economic growth in Pakistan.
The writer is sub-editor, Profit and can be reached at mashal.amjad@pakistantoday.com.pk