The global economy is continuing its gradual recovery from the financial crisis, with the latest data pointing to a broad-based pickup. However, longer term Asia is seen maintaining its position as the fastest-growing region, with China and India leading the charge.
The Organization for Economic Cooperation and Development’s (OECD) latest “Economic Outlook” report suggests fiscal and monetary stimulus has underpinned a synchronized improvement in growth rates across most countries. The Paris-based organization forecasts a 3.6 percent global expansion this year, rising to 3.7 percent in 2018, albeit still below the pre-crisis period and that of past recoveries.
For the Asia-Pacific region, the OECD projected further expansion for the region’s largest economies. China is expected to post a 6.8 percent rise this year, although easing to 6.6 percent in 2018 and 6.4 percent in 2019 as the authorities “rebalance” the growth model for the world’s second-largest economy.
Japan, the world’s third-largest economy, is seen extending its longest expansion in nearly two decades with a 1.5 percent GDP rise this year. This would be followed by around 1 percent growth for the next two years, amid an expected consumption tax hike and declining labor force.
South Korea is seen sustaining growth at around 3 percent through 2019, helped by stronger global trade and greater fiscal support, although high household debt and weak employment growth could weigh on consumption.
Among the emerging stars, India is expected to surge from 6.7 percent GDP growth this year to 7 percent in 2018 and 7.4 percent in 2019, due to further reforms that are seen boosting investment, productivity and growth.
Indonesia should also enjoy steady growth around 5 percent, with rising household incomes supporting increased consumption.
Down Under, Australia is seen posting a growth pickup from 2.5 percent in 2017 to 2.7 percent next year, extending its record-beating economic winning streak. However, the OECD expects its central bank to start hiking rates from the second half of 2018, with the economy vulnerable to “too big to fail” risks due to its indebted household sector and concentrated banking industry.
Neighboring New Zealand is also expected to enjoy a stronger outlook, with GDP growth tipped to increase to more than 3 percent in 2018 and 2019, reflecting stronger investment and exports, although Kiwi households are also exposed to higher interest rates.
Nevertheless, the OECD notes the persistent global effects of “prolonged subpar growth” on private-sector performance, including investment, productivity and trade. While employment rates are now above pre-crisis levels in many OECD nations, the stronger labor market has yet to produce solid gains in real wages.
“Growth has picked up momentum and the short-term outlook is positive, but there are still clear weaknesses and vulnerabilities,” OECD Secretary General Angel Gurria said.
“There is a need to focus structural and fiscal action on boosting long-term potential as monetary policy support is reduced. Countries should implement reform packages that catalyze the private sector to promote productivity, higher wages, and more inclusive growth.”
2030: India, Philippines, Vietnam Stand Out
While the developed world gradually recovers from the global financial crisis, Asia has continued to steam ahead and should remain the best performer through the end of the decade, according to BMI Research.
“By 2030, Asia will account for the largest share of global GDP at around 40 percent. China will account for approximately half of that, and will be roughly on par with North America and Europe,” BMI’s Cedric Chehab said in an October 25 presentation.
The London-based researcher expects the fastest-growing economies to be from Asia and Sub-Saharan Africa.
“The key driver of Asian GDP will be a combination of strong demographics, robust macro fundamentals, greater trade integration and government policy aimed at reform,” Chehab said.
Asia’s brightest emerging stars will comprise India, Vietnam, and the Philippines, due to their populous and fast-growing economies. India is seen posting an average real GDP growth rate close to 7 percent through to 2030, followed by Vietnam and the Philippines with around 6 percent rises.
However, emerging markets will still have much lower GDP per capita levels compared to their advanced rivals. Developed markets are expected to average around $60,000 per capita GDP by 2030, compared to less than $10,000 for emerging markets.
Based on the criteria of positive demographics, reform momentum, and attractive investment opportunities, BMI sees Argentina, India, Indonesia, Mexico, and the Philippines as the standout emerging markets through to the end of the decade.
Asia’s continued prosperity will be aided by population growth, with its share of world population remaining above 50 percent through 2030 due to an additional 410 million people. However, unfavorable demographics will dampen growth in Japan, which will see its “pensionable” population climb to nearly 30 percent, while China’s will also double to around 15 percent.
Urbanization rates will also rise in Asia, from around 40 percent in 2010 to above 50 percent in 2030, providing another growth boost due to the emergency of new city clusters, with related consumer and manufacturing hubs.
Sectoral trends affecting industries will include the growth of “the internet of things,” China’s “go out” strategy, and the growth of automation and robotics, although a negative trend could emerge from creeping protectionism.
“Even before [U.S.] President Trump was elected, the trend of greater protectionism was already in place. And if we continue to see greater political polarization, increased income inequality or another economic crisis, then we may see further trade protectionism,” Chehab said.
Global trade as a proportion of GDP peaked in 2007 at around 50 percent but has subsequently declined to around 45 percent and could fall further if free trade negotiations falter, he said.
The analyst said a “squeezed” middle class in Europe and North America had resulted in increasingly unstable politics. Instead of the traditional left-right divide, popular movements of both the left and right have emerged to challenge the established order.
“There’s been a shift toward strongman leadership at the top, as well as popular movements at the bottom that have disrupted the status quo in terms of traditional left and right. At the top, leaders such as Trump and [Philippine President Rodrigo] Duterte have a mix of conservative and liberal values that confuse traditional party politics,” Chehab said.
Emerging markets have seen a shift in both directions of authoritarianism and democracy, with the former including Thailand and the latter featuring Myanmar and Sri Lanka. Changes in population and urbanization could cause social unrest in countries with young populations but with sluggish income growth and weak political institutions, such as Pakistan, Chehab predicted.
Other potential flashpoints include U.S.-China relations over both security and trade, along with North Korea.
“If war were to break out, it would have a massive impact on South Korea and Japan. And given how supply chains are integrated across Asia, it would disrupt the global supply chain, which would weigh on Asian and global growth, as well as the humanitarian crisis that would unfold,” Chehab said.
Managing such risks should keep Asia’s diplomats engaged for some time to come. But barring a major crisis, Asia’s rise as the leading global economic heavyweight appears likely to continue through 2030 and beyond.