In the years before the pandemic, the emerging economies of Asia were the world’s economic success story. The economies of China, India, Indonesia, Malaysia, the Philippines, Thailand, and Vietnam expanded at a combined 6.1% CAGR from 2010 to 2019. This is in contrast to the 4.3% and 3.9% CAGRs seen in emerging markets globally and in emerging and developing nations, respectively. The growth of these Asian economies is largely a reflection of developments in China, which accounts for over 60% of total GDP. A CAGR of 6% was found regardless of whether or not China was included in the analysis.
Long-lasting cyclical decline
In recent years, growth in developing Asia slowed. However, in 2020–2022, the CAGR dropped to 3.9% as growth deviated from its 2010s pattern due to the avian flu epidemic, Russia’s invasion of Ukraine, and escalating tensions between the US and China. Real GDP in the area is expected to expand by an impressive 5.4% in 2023, but this is still 7.4% lower than it would have been if growth trends from the 2010s had been maintained.
The impacts of recent shocks are still being felt, according to EIU, making the future difficult for developing Asia as well. Our projections indicate that growth in this group of economies will continue to lag below its long-term trend in 2023 and 2024, increasing by just around 5.3% on average. This is not yet a recession, but it does show that the economic cycle is in a prolonged decline. One important contributor is China’s slowing economy, which is expected to grow by an annualized 5.2% in 2023 and 2024. But even if we exclude China, this group’s growth will still fall short of long-term averages. The growth rate for Vietnam, for instance, is predicted to slow to 4.8% in 2023 from 7.8% in the decade before.
A lack of investment momentum
A change in the economic drivers in the area is a worry beyond the next two years. Investment and exports have traditionally been the driving forces behind economic expansion in rising Asian countries, following in the footsteps of more developed Asian nations like Japan and South Korea. Academic research argues that economies in their formative phases benefit from investment and export-led growth because it enables them to amass human and physical capital that can be used to sustain growth, productivity, and consumption in the long run.
According to EIU projections, developing Asia is having trouble gaining the necessary traction in terms of investment and exports. Even if investment opportunities exist, such as the possibility of a more diversified regional supply chain, we anticipate that private consumption will be the primary engine of economic development in the area through 2030. There are a number of variables at play, including low savings, a weak business climate, and moderate wage growth, that are delaying the shift to an investment-led boom.
Particularly problematic for China’s regional competitors is China’s industrial competitiveness. The rising economies of Asia have substantially lower labor productivity than China. China has surpassed other developing economies in the area, despite the fact that its labor productivity is still considerably behind that of advanced Asia, thanks to advances in technology and economies of scale. In the 1990s, Thailand considerably outpaced China in terms of productivity.
The area still lacks the capacity to produce high-end goods. Instead of building up their ability to produce complex commodities like semiconductors, emerging Asian countries have been concentrating on the assembly of finished goods. Thailand, the Philippines, and Vietnam all have less than 1% of the worldwide export market. Neither India nor Indonesia have been successful in penetrating that particular market.
Still a ways to go
There is a long way to go before emerging Asia reaches developed Asian standards of living. Current development trends for Malaysia and China predict that they will likely catch up to the average level of GDP per capita in developed Asia in 2030. Building on the business environment changes and investment in skills and capacities of recent years, developing markets like India and Indonesia, which have a lower level of GDP per person in purchasing power parity terms, face a longer development trajectory.
This article relies on data and projections from EIU’s Country Analysis service. The political and economic climate in over 200 nations is analyzed by this comprehensive system, allowing businesses to foresee both possibilities and threats.