It’s a hard slog sometimes looking for new and surprising sources of global economic growth that have not already be heavily discounted by global investors, especially in the uncertain world of 2012. It’s been as hard of late to find new arguments to invest in China and quite a few people suggesting the opposite.
But a Credit Suisse report out on Tuesday homed in on worldwide urbanization trends to find out where this well-tested driver of economic activity was likely to have most impact int he 21st century. For a start, the big aggregate numbers are as dramatic as you’d imagine. More than half of the world’s population now lives in urban areas, crossing that milestone for the first time in 2009. And, accordingly to United Nations projections, urban dwellers will account for 70 percent of humanity by 2050. As recently as 1950, 70 percent of us were country folk.
CS economists Giles Keating and Stefano Natella crunch the numbers and reckon that, typically, a five percent rise in urban populations is associated with a 10 percent rise in per capita economic activity. Crunching them further, they find that there’s a “sweet spot” as the urban share of the population is moving from 30 percent to 50 percent and per capita GDP growth peaks. Emerging markets as a whole are currently about 45 percent, with non-Japan Asia and sun-Saharan Africa standing out. Developed economies are as high as 75 percent.
Adding other variables to this “sweet spot” — such as overall population size, relatively equal income distributions, falling levels of corruption and capital market access — and CS come up with a list of favoured countries for those following this theme and they include China, Egypt, India, Indonesia, Nigeria, Pakistan, the Philippines, Thailand and Vietnam. Not the BRICs in terms of clever anagrams, but an interesting collection of hotspots that, significantly, still has both China and India as prominent.
We find that, as countries urbanize, there is typiclaly an associated incremental gain in the consumption share of GDP, which we argue is particulary relevant in the case of China