The International Monetary Fund (IMF) has upgraded its estimate for 2023 growth in emerging and developing Asia from 4.9% to 5.3%, which is more than triple the expected pace of U.S. expansion and more than seven times faster than that seen for the euro area. Other estimates also agree that Asia is where the growth is.
Prudent Fiscal Management
One reason for the broad-based optimism is that years of prudent fiscal management since the Asian financial crisis of the late 1990s has enabled most regional economies to emerge from COVID with minimal scarring. By strengthening foreign exchange reserves, controlling inflation, and ensuring that regional economies do not stumble when interest and exchange rates move against them, potential weak spots have been addressed.
Another long-term trend is the shift in Asia’s intraregional economy, making it much less dependent on the health of Western economies than it once was. Organizations like the Association of Southeast Asian Nations and agreements like the Regional Comprehensive Economic Partnership and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership have optimized the area’s long-term growth potential by removing trade barriers and making the region more attractive for investment.
The Asian Economic Transformation
For years, much of developing East and Southeast Asia leveraged its low labor costs to tap into export-driven growth, particularly China and the so-called “tiger” economies. Gross domestic product per capita in East Asia and the Pacific rose from $3,250 in 1990 to $20,300 in 2021, while foreign direct investment inflows rose from $34 billion to $741 billion. This set off the fastest and deepest economic transformation in history, lifting hundreds of millions of people out of poverty.
This transformation has created new consumers who are driving Asia’s growth. The Brookings Institution estimates that the number of consumers in Asia will grow from 560 million in 2000 to some 3 billion, or 70% of the region’s population, by 2030, while McKinsey & Co. forecasts that Asia will account for over half of global consumption by then. These new consumers are buying Asian-made goods, and intraregional trade grew 50% between 2019 and 2022, according to shipping conglomerate Maersk.
Opportunities for Western Companies
Western companies have opportunities in Asia, particularly in professional service industries, particularly those with well-developed global digital strategies that can take advantage of the explosive growth in Asia’s online community. The latest U.N. estimates suggest that Asia’s imports of commercial services increased 9.2% last year and will grow another 5% this year. From global middle-class must-haves like education, entertainment, and travel to professional services like accounting, law, and architecture, services will drive the next round of growth.
Financial Services Industry
There are particular opportunities for the financial services industry. Part of this will be managing the wealth of Asia’s new consumers. A Boston Consulting Group report last year estimated that Asia will generate $22 trillion in new wealth between 2020 and 2025. This will also involve financing lifestyle improvements and contributing to the growth of Asia and its trading partners by facilitating trade and expanding access to financial products that can fund expansion and manage risk.
The rise of the Asian consumer is tipping the balance of economic influence eastward. Not only is the region becoming less vulnerable to external economic shocks, but the world also needs Asia’s economy to thrive as much as Asia needs the global economy. Asia’s success was founded on supplying the world, and the future lies in Asian demand.