Household spending is the lifeblood of global economies, accounting for the lion’s share of GDP across advanced and emerging markets alike. As we approach 2025, understanding the evolving consumption landscape has never been more vital.
From the corridors of finance ministries to the shop floors of manufacturers, the health of consumer demand shapes employment, innovation, and broader economic resilience. In this context, consumption remains more than a statistic—it is the dynamic engine of growth.
Why Consumption Is the Engine of Global GDP
In most advanced economies, household consumption accounts for 50–70% of GDP. The United States typically sees consumption at around 68–70% of output, the European Union at roughly 52–55%, and many large emerging markets at 50–60%.
History shows that when consumer spending slows, recessions often follow. The financial crisis of 2008–09, the pandemic-induced downturn of 2020, and the income squeezes of 2022 all illustrate how declines in demand can deepen economic contractions.
At its core, the basic demand-led growth loop operates as follows: households spend, firms generate revenue, businesses hire workers, incomes rise, and consumption grows further, creating a virtuous cycle.
The multiplier effect across supply chains magnifies every spent dollar, as income generated in one sector ripples through others—services, manufacturing, logistics, and beyond.
However, global demand imbalances persist. The US and certain advanced economies run significant consumption-heavy external deficits, while surplus countries under-consume, resulting in consistent global demand imbalances that can distort trade and investment flows.
The Current Outlook: Cooling But Resilient Consumer Spending
As we look ahead, forecasts signal moderate but positive growth in household outlays, even amid uncertainty.
- J.P. Morgan Research anticipates global consumer spending to rise about 2.3% year-over-year in 2025, underpinned by selective market strength.
- NielsenIQ projects roughly 6% nominal growth in global spending for 2025, significantly influenced by emerging market inflation.
- Morgan Stanley expects US nominal spending growth to decelerate to 3.7% in 2025 (down from 5.7% in 2024) and further to 2.9% in 2026, citing a cooling labor market and policy uncertainty.
- Bank of America Institute data reveal that US credit and debit card spending per household rose 1.8% year-over-year in July, the fastest pace since January.
Together, these figures indicate that nominal growth remains modestly positive, yet real purchasing power is constrained by inflationary pressures and higher financing costs.
Moreover, household balance sheets have shown resilience. Despite rising delinquencies, defaults remain below predicted levels based on 15 years of historical trends, suggesting consumers are weathering rate hikes better than some anticipated.
Within this environment, younger cohorts stand out. Gen Z and Millennials increased spending roughly 5.9% month-to-date in May compared to the prior year, highlighting the growing influence of digital natives on consumption dynamics.
Consumer Sentiment and Intent: Frugal but Still Spending
The AlixPartners 2025 Global Consumer Outlook, surveying over 15,000 individuals across nine countries, captures a cautious mood:
More than 75% expect their personal spending to remain flat or decline next year—31% plan to spend less, 47% plan to keep outlays steady, and only 19% anticipate spending more.
Regional patterns offer welcome exceptions: China and the Middle East exhibit net positive intentions, with 39% of Chinese consumers planning higher spending and nearly 20% intending cuts, yielding a net +10%. The Middle East contributed a net +13% increase in global spending intent.
Income and age further color these intentions. Higher-income households driving demand plan to boost spending more than middle- or low-income groups, while consumers aged 55 and above are most likely to curtail outlays.
Key reasons consumers cite for tightening their belts include:
- Less disposable income due to rising living costs.
- A shift in priorities toward essentials and high-value purchases.
- Health and sustainability concerns prompting at-home alternatives.
Macro Headwinds: Inflation, Rates, and Inequality
Inflation remains a top concern for 62% of global consumers, influencing choices on everything from groceries to major appliances and vehicles.
Half of consumers worldwide feel negatively about their country’s economic prospects, a sentiment that can dampen discretionary spending and heighten savings rates.
Since 2021, price pressures have already depressed demand in key discretionary categories. For instance, garden furniture sales have plunged by approximately 48%, home exercise equipment by 28%, and gaming console purchases by 11%.
Tighter credit conditions and elevated mortgage rates have also weighed on spending. The US housing market remains “largely stuck,” awaiting rate relief before a sustained rebound.
Inequality within the consumption engine is widening. After-tax wage growth for lower-income households slowed to just 1.3% year-over-year in July, while higher-income earners saw gains of 3.2%, underscoring divergent capacity to maintain consumption.
Structural Forces Reshaping Consumption
Demographics are reshaping how and where consumers spend. Younger generations demand digital-first experiences, favoring mobile commerce, subscription services, and social commerce platforms.
Technological advances—AI-driven personalization, seamless cashless payments, and voice-activated shopping—are no longer experimental; they are fast becoming baseline expectations.
Health, wellness, and environmental considerations are also gaining prominence. The rise of plant-based diets, eco-friendly products, and circular economy models reflects a sustainable and ethical brands gaining traction.
Meanwhile, remote work trends are influencing spending on home offices, streaming entertainment, and local services, creating new micro-markets and growth opportunities.
Looking Ahead to 2025–2030: Navigating the Shifting Engine
Looking forward, economists project global real consumption growth to average around 2.5% annually through 2030, with emerging markets leading at 4–5%, driven by urbanization and rising middle-class incomes.
A gradual return to 2%–3% inflation could unlock additional purchasing power, reinforcing the virtuous cycle of income and spending.
Businesses poised for success will:
- Leverage data analytics to anticipate changing needs and personalize offerings.
- Optimize product portfolios around value, sustainability, and seamless digital experiences.
- Engage younger consumers through authentic, purpose-driven brand narratives and innovative channels.
Policy leaders can bolster demand by ensuring inclusive wage growth, deploying targeted fiscal support, and maintaining predictable monetary conditions to foster confidence among businesses and households.
By embracing these insights and strategies, stakeholders can harness the potent force of consumption to drive resilient growth, reduce inequalities, and create shared prosperity through 2030 and beyond.
