Car Index Indicates Growth Potential High in Developing Nations

September 26, 2012

The International Monetary Fund hints it may cut global growth forecasts again next month when it updates its projections for the world economy. The global lending institution says worldwide growth is weaker than expected due to continuing uncertainty in Europe and the US. But while many agree the global recovery has been weak, some economists point to the rising number of automobiles in developing nations as a sign that the world's economy is moving in the right direction.

Despite forecasts for a slowdown in the global economy, a little known economic indicator is starting to gain traction. The so called "car index" is an attempt to measure the world's middle class based on the number of people who own cars.

Uri Dadush is head of the global economics program at the Carnegie Endowment for International Peace. "Ownership of cars is going to explode, is exploding at the moment in the developing world, a sign that the middle class is exploding. And the reason for that is, is there are about 70 countries with a population of about three billion people who are approaching a threshold of income, about $4000 per capita where the middle class really increases very, very rapidly," he said.

Dadush says the relative rise in average incomes means greater demand for non-essential goods. "Because that's the threshold of income where people begin to have enough to buy all sorts of things. And it so happens that the things they will buy are the sorts of things that Japan, Germany and the United States excel at producing," he said.