Key Asia/Pacific Indicators 2010: Developing Asia's rapidly expanding middle class is likely to assume the traditional role of the US and Europe as primary global consumers and help rebalance the global economy, says a new report on Asia’s middle class from the Asian Development Bank (ADB).

The report, published in a special chapter of Key Indicators for Asia and the Pacific 2010, the flagship annual statistical publication of the ADB, says that Asia’s consumers spent an estimated $4.3trn (in 2005 purchasing power parity dollars), or about one-third of OECD consumption expenditure, in 2008 and by 2030 will likely spend $32trn, comprising about 43% of the worldwide consumption.

The special chapter, titled "The Rise of Asia’s Middle Class”, examines the rapid growth of Asia’s middle class, how the poor advance to the middle class, factors that characterize the middle class, and pathways through which they become effective contributors to growth and poverty reduction in the region.

“Developing Asia’s middle class is rapidly increasing its size and purchasing power, and will be an increasingly important force in global economic rebalancing,” said ADB chief economist Jong-Wha Lee. “Even though the Asian middle class has significantly lower income and spending relative to the Western middle class, its growth in expenditures has been remarkable and its absolute levels are commanding.”

The Manila-based ADB says strong economic growth in Asia over the past two decades has been accompanied by significant reductions in poverty as previously poor households have moved into the middle class. Defining the middle class in Asia as those consuming between $2 and $20 per day, the report found that in 2008, Asia’s middle class had risen to 56% of the population - - or nearly 1.9bn people - - up from 21% in 1990. The middle class of China is currently larger than all others in absolute size, having added 800 million people to its ranks between 1990–2008. In the same period, spending in Asia increased almost three fold, compared to marginal increases in all other regions, including developed countries. As a result, consumption expenditures by developing Asia are now second only to developed countries.

The report stresses that a great number of Asia’s new middle class individuals still get by on incomes just above poverty levels, leaving them vulnerable to a relapse into poverty. At the same time, the emergence of so much new spending power carries with it a host of new environmental and health concerns that until recently were more typical of wealthier parts of Asia and the world.

“Clearly, policies are needed that both bolster the new status of the middle class and deal with its adverse consequences; policies that encourage the creation of and access to more well-paid jobs and more advanced education and health care to help prevent slippage back into poverty, and that mitigate additional environmental constraints and health concerns,” said Dr. Lee.

Yet, in balance, expectations are that Asia’s middle class, through its sheer size and dynamism, will present a huge opportunity for the region and for the world. The report projects that by 2030 much of developing Asia will have attained middle class and upper class majorities, with China and India expected to provide the largest number of new middle class. With the appropriate middle-class friendly policies, the report says, Asia will be able to move away from export-led to domestic-led consumption growth and reduce its exposure to negative external shocks, such as the 2008 global financial crisis, which began in the US. In turn, it will also help correct the global imbalances that contributed to the financial crisis.