URBANIZATION A KEY TO CONSUMPTION

June 29, 2010

Urban populations are growing in Asia and may hold the key to the region's future economic growth.  According to the McKinsey Global Institute (MGI), per capita growth in urban areas is expected to outpace that of rural areas over the next 15 years, says Frank Holmes, chief executive officer and chief investment officer of U.S. Global Investors Inc. 

  • The global urban population is expected to grow by 1.6 billion people by 2025, 40 percent of that coming from China and India alone.
  • By 2025, China's urban population is expected to be three times that of the United States and India's is expected to double. 

One reason for this explosive growth is that urban jobs tend to pay more, says Holmes: 

  • In 2008, average per capita income in China was 254 percent higher in urban versus rural areas, according to Morgan Stanley.
  • More pay leads to more discretionary spending; MGI estimates that the number of Indian households with discretionary spending could jump from just 13 million in 2005 to 89 million households by 2025.
  • MGI says discretionary spending will account for 70 percent of consumption growth. 

We've already seen how urban migration affects China's overall consumption, which in urbanized eastern provinces is roughly 33 percent higher than in rural western provinces.   As urban centers grow in western China, consumption levels for materials, goods and services should rise, says Holmes. 

Source: Frank Holmes, "Urbanization a Key to Consumption," The Daily Reckoning, June 5, 2010. 

For text:

http://dailyreckoning.com/urbanization-a-key-to-consumption/  

 

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