The conventional wisdom is that consumption in emerging economies is still too small to compensate for a slowdown in consumer demand in advanced countries. As illustrated in Figure 1 at the very beginning of this report, the US is an order of magnitude larger than any other consumer market. Measured in nominal USD terms, private consumption demand in the US in 2010 was five times that in China and double that of Brazil, India, Russia and China combined. Thus, it is argued that when the US consumer sneezes, all emerging markets catch a cold. However, there are reasons to believe that the power-balance may no longer be as one-sided as is widely believed.

First, the measurement of consumer demand in nominal US dollars understates consumption demand in emerging markets since prices tend to be significantly lower in these countries. When adjusted for Purchasing Power Parity (PPP), private consumption demand in China alone amounts to 38.5% of the US. The ratio for India is 29% and that for Brazil and Russia are around 13% each. In other words, the combined consumer demand of China, India, Russia and Brazil is 92.5% of the US and the ratio is rising quickly. As shown in the chart below, China and India have come a long way since the mid-1990s. Looking ahead, both countries are likely to generate high GDP growth rates in the foreseeable future but, at least in China's case, private consumption is likely to grow even faster. As discussed in our previous Wide Angle report, wages are now rising at 15-17% in nominal terms (see "Is Outsourcing History?", 20th June 2011). This is likely to decompress the share of private consumption expenditure to a level much higher than the current 33% of GDP. Indeed, this is a part of official policy objectives.

Eoin Treacy's view Countries have demonstrated repeatedly that sound fiscal policies in conjunction with improvements in standards of governance and education can help lift a higher percentage of their people out of poverty. If we extrapolate that trend, then higher per capita consumption is a logical step as incomes improve.

The bull market in commodities and consumer goods is being driven by hundreds of millions of new middle class people striving for the standard of living many in Europe and North America take for granted. The big difference on this occasion is that for the first time in centuries the world's largest population centres are among the fastest developing. It may take time for Asian consumers to overtake the USA on an absolute consumption basis but the trend is clear.