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By: An Hodgson

Euromonitor International has identified three key global trends for Income and Expenditure in 2014. The outlook for income and expenditure for 2014 is expected to be brighter, with growth in global annual disposable income per household forecast to accelerate to 1.2% in real terms over a year earlier, considerably higher than the 0.4% annual real growth recorded in 2013. Rising household disposable income, together with anchored inflation expectations, will support higher consumer expenditure growth globally. However, risks to the downside remain, especially with regards to the potential tapering of the US Federal Reserve’s quantitative easing programme which could push up interest rates, cause currencies to depreciate and stoke consumer price inflation in emerging markets. In addition, rising income inequality will pose another risk to income and consumer expenditure growth in many countries, both in the developed and developing world.

Annual Real Growth in Global Disposable Income and Consumer Expenditure per Household: 2008-2014

Source: Euromonitor International from national statistics/Eurostat/UN/OECD
Note: Data for 2013 and 2014 are forecasts 

1.     Accelerating Growth in per Household Annual Disposable Income

  • Growth in global annual disposable income per household in 2014 is expected to reach 1.2% in real terms over a year earlier. This is considerably higher than the 0.4% annual real growth recorded in 2013 and 0.3% in 2012, and is a reflection of improved economic performance and lower unemployment in developed countries;
  • Western Europe will be on the right track in terms of reducing unemployment and boosting growth, although it is expected to be the region with the lowest rate of growth in real household disposable income in 2014, at 0.3% year-on-year in real terms. This positive, albeit modest, rate of growth will be a much welcomed turnaround for households in the region who saw their real annual disposable income fall every year since 2007.

2.     Low Inflation Expected, but not without Risks

  • 2014 will be a year of relatively low inflation and anchored inflation expectations in many economies. In emerging and developing economies, the annual rate of inflation for 2014 is forecast to slow to 4.4% from 4.7% in 2013. In Western Europe, inflation will also edge down to 2.7% in 2014, from 2.9% in 2013. Globally, Euromonitor International estimates that inflation will remain stable at 3.9% in 2014, compared to 3.8% in 2013 and 3.9% in 2012;
  • Where inflation stays low and/or below expectation, interest rates will unlikely rise during 2014, which can support consumer expenditure and credit growth. Additionally, major emerging economies will carry on boosting domestic consumption in an effort to shift the focus of their economy away from exports. In emerging and developing economies, annual real growth in total consumer expenditure is expected to accelerate to 5.7% in 2014, from 4.6% in 2013, creating greater opportunities for consumer goods businesses. Developed countries will see their consumer market expanding by 1.7% in real terms in 2014, up from 1.1% in the previous year;
  • The potential withdrawal from quantitative easing and zero interest rate policy by the US Federal Reserve will be the biggest risk facing emerging markets in 2014. Monetary tightening in the USA can prompt large capital outflows from emerging markets, leading to currency depreciations. Tumbling currencies in emerging markets will push up the costs of imported goods, stoking up inflation with adverse effects on household incomes and consumer expenditure.

3.     Rising Income Inequality in Both Developed and Developing Countries

  • Rising income inequality will pose another risk to income and consumer expenditure growth in many countries, both in the developed and developing world. The Gini index – a standard economic measure of income inequality varying between 0% (perfect equality) and 100% (perfect inequality) – is forecast to increase significantly in 2014 over 2007 not only in emerging economies such as Indonesia (from 36% to 42.0%) and India (from 38.6% to 41.0%) but also in developed countries such as Sweden (from 33.9% to 38.1%) and the USA (from 46.3% to 48.0%);
  • High income inequality can restrict the potential of consumer markets because the purchasing power is concentrated among richer households. This however does not mean poorer households should be overlooked. In those countries where income inequality is rising, consumer goods businesses will need to pay greater attention to extending their product range and offering products at the lower price levels (such as own brands and budget goods) in order unleash the potential of lower income households.

 

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