Private consumption, pillar of the economy

  If there's one thing that characterizes advanced economies it's an extensive middle class. This group's lifestyle includes aspects such as the benefits of housing, access to educational services and health, the chance to take advantage of retirement, a life that combines moments of leisure (including holiday periods) with others of work, etc. The middle class lifestyle is related to certain levels of income. A recent study by the Organization for Economic Cooperation and Development (OECD) chooses to define middle class as the one made up of those households where daily consumption is at least 10 US dollars per person (in purchasing power parity). In a household with four members, this would mean a consumption threshold of around 15,000 dollars a year.

  In fact, one of the characteristics of the middle classes is their high propensity to consume. And since the middle classes make up the largest component in countries with the highest income, it can be said that a large part of their consumption moves the economy. In most OECD countries, private consumption expenditure accounts for between 50% and 60% of the annual gross domestic product. Of note is the case of the United States, where consumption accounts for more than 70% of the product, while at the other extreme are the European Nordic economies, where this does not reach 50%. It's clear that consumer decisions are crucial to how an economy evolves.

  Whereas, until recently, the existence of a significant middle class was an almost exclusive privilege of developed economies, the situation is changing quickly. In the last two decades we have witnessed the appearance of a new contingent of middle classes in the emerging economies. According to OECD projections, by 2020 two thirds of the middle class will live in areas other than North America and Europe. These 2,200 million people will be responsible for 54% of the total consumption by the world's middle class. In short, this is a hugely significant change in scenario as, for the first time since the industrial revolution, most of the world's consumption will have shifted from west to east, both in terms of the number of consumers and in spending capacity.

  On the other hand, in advanced countries the prospects for private consumption expenditure are somewhat more subdued. The crisis and the recession have uncovered the excesses of the previous economic expansion, including a certain excess consumption. In general, this spending spree arose out of the boom in the economy and employment, but also from lax financial conditions and generous liquidity. Some studies point to a direct link between the degree of household indebtedness and the severity of the crisis and the rise in unemployment. High consumption also helps to explain other imbalances suffered by some economies, such as the deficit in the current balance of payments.

  Will these excesses of the past have to be purged in the coming years? In the short term, a hangover from the crisis will be noticed in households' spending on consumption, affected by various factors that keep it in check, such as the withdrawal of fiscal stimuli (subsidies for buying a car, etc.), the slow improvement in the labour market and a low level of confidence. The unavoidable reduction in household indebtedness won't encourage any fast improvement in current expenditure either. Nevertheless, in the medium term consumption should regain its traditional role as the driving force in developed countries. However, in order for it to be sustainable, it must keep in line with the real possibilities of the economy.

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