APAC's middle class: thriving despite economic hurdles

Strong economic growth in Asia Pacific has been transforming the wealth and prosperity of its populations. The middle class has been rapidly expanding for several decades.

However, in recent years, several factors have impeded its growth trajectory, including the COVID-19 pandemic, heightened geopolitical uncertainty, and a high interest rate environment. Have these events significantly altered the region’s growth trajectory? The answer is a profound “no”.

It's important to note: there is no single definition of the middle class. To make appropriate comparisons, I will refer to the Oxford Economics definition, which defines middle-class households as those with a combined annual income of USD 20,000 or above in Purchasing Power Parity (PPP) terms. PPP is the preferred metric for many economists when comparing countries in terms of economic productivity and living standards. It is the exchange rate at which one nation’s currency would be converted into another to purchase the same basket of goods.

Figure 1: Middle-class households in Asia Pacific (millions of households)

Source: Oxford Economics, 2024

In taking a closer look at Figure 1, we can observe that the combined number of households entering the middle class in Asia Pacific has increased by more than 332 million in the past decade. This number is projected to rise by another 352 million by 2034. In fact, the aggregate number of households reaching the middle class in the Asia Pacific countries is expected to exceed a billion by 2034, outnumbering those in the US by approximately eight times. The rise of Asia’s middle class is expected to remain a dominant socioeconomic theme in the upcoming decade and beyond.

India and China are the main drivers of this trend, expected to double and triple the US in terms of middle-class households, respectively. There is a notable disparity between the trends in Asia and the US. The US is experiencing a middle-class squeeze, where many households are under pressure due to the higher cost of living. Middle-class wealth has faced pressures from persistently high inflation and a prolonged high interest rate environment, which has increased monthly debt payments, impacting consumers’ wallets.

The outsized growth in China and India must be viewed in the context of their vast populations. As the two most populous countries in the world, major shifts in socioeconomic trends will significantly increase the size of their middle-class. Additionally, economic reforms and rapid development in both countries have spurred the rapid growth of the middle class. In China, the middle class is largely characterised by being well-educated, urban, and employed in white-collar jobs or owning small businesses. India is also experiencing middle-class growth primarily in urban areas, with a significant portion working in the IT and services sectors, as well as other skilled professions.

The rising prosperity in the region over the past several decades has been nothing short of incredible. This dramatic growth is spurring demand for a variety of services and shaping consumer spending patterns. Despite the diverse economic and cultural settings across APAC, certain segments of the Chinese and Indian economies are broadly expected to benefit: healthcare, wellness, travel, luxury, consumer tech and more sophisticated financial services.