Over the past thirty years there has been an emergence and almost deification of retail sales as the driver of economic growth. For instance, in the U.S. it is quite common to hear economists talk about how 70 percent of GDP growth stems from consumer spending and therefore if consumer spending dries up, so does GDP growth.
Ignoring for the moment the illegitimacy of the argument once one begins to consider productivity, investment, and other real growth drivers (i.e. the consumer is a follower, not a leader), here is a look at the global retail sales recovery according to national statistics. This matters for investment banking professionals in that it affects where future global deals may be sourced, as well as affecting investment bankers’ advice on marketing and overall strategy.
Global Retail Sales Growth Since 2007
Likely unsurprising, the country that has experienced the largest growth in retail sales is China at about 183 percent. In a distant second place is Brazil at 148 percent growth since 2009. The third fastest growing consumer base is Canada at 68 percent, followed by Russia at 61 percent and South Korea at 46 percent. The bottom end of the spectrum includes Spain at -16 percent, Japan at 4 percent, Mexico at 7 percent, Italy at 7 percent, and Switzerland at 8 percent.
Interestingly, right in the middle of the group is the United States at 33 percent, grouped with Sweden, Norway, the U.K., Australia, Belgium, Germany, the Netherlands, and France.
The shifting of the global consumer to non-western countries largely indicates that investment banking professionals should give greater attention to how strong demand for their services will perform in fast growing countries. Focusing only on so-called “advanced economies” may leave investment bankers in the out in coming years.
Can the BRICs Keep it Up?
With these numbers as the backdrop, it likely comes as no surprise why markets continue to shift their attention to emerging markets in search of growth. Three out of the four leading so-called emerging markets are in the top four (China, Brazil, and Russia). The fourth member of the famous BRICs group is India, which lacks timely data to be included in the analysis.
Given the increasing importance of the BRICs, the question economists keep asking themselves is – can they maintain this growth?
The simple answer is, at least in the case in three out of the four, yes. There’s an enormous appetite in the People’s Republic and India to become more like the U.S. consumer. Unless something happens with property values in China, there’s no sign of the Chinese consumer stepping away from large scale consumption. Of course, one of the four – Russia – likely will give up some of its growth given the ongoing fighting in what governments currently call Eastern Ukraine.
Overall, the global retail world continues to shift its attention towards consumers in China, Brazil, and other emerging market economies. Although some economists have their doubts about the sustainability of the emerging market consumer, every indication is that these emerging economies will continue to become more like American consumers rather than revert to a slower growth path. Investment bankers who ignore this fact will certainly become dinosaurs in a field generally on the cutting edge of market and consumer research.