More than any other region in the world, Emerging Asia has the foundations in place to deliver economic outperformance to 2050 and beyond. Robert Gilhooly, senior economist at abrdn, outlines five reasons why Asia’s future is looking especially bright.
1. By 2050, four of the world’s seven largest economies will be in Asia…
It’s widely reported that China looks set to overtake the US as the world’s largest economy. We anticipate this could happen by around 2035. But India, too, is charging up the league tables and could even take fourth place by the early 2030s. Our projections also suggest Indonesia is set to be the world’s seventh large economy by the mid-2040s.
Including Japan at fifth spot, that means Asia will be dominating the global economy over the second half of this century.
And in Developing Asia, our analysis shows the Philippines, Pakistan, Bangladesh, and Vietnam are all looking set to break into the top 25 global economies.
Figure 1: Emerging Asia is set to dominate the global economic landscape
Rank of top 10 economies in the global economy
Source: abrdn, Haver (March 2023)
Forecasts are offered as opinion and are not reflective of potential performance. Forecasts are not guaranteed and actual events or results may differ materially.
2. …and Emerging Asia could account for 58% of global growth by 2050
Global growth is set to slow from around 2.5% a year to 1.5% a year by 2050 – in part due to less support from population growth in major economies.
But our analysis shows Asia should still be able to outperform, thanks to a more favorable demographic backdrop (of which more below) and the scope for economies to play ‘catch up’ with their more developed peers. For example:
- Income levels are still relatively low in many Asian countries
- There is still massive potential for workers to move out of agriculture and into more productive manufacturing and service jobs
- Many Asian firms have yet to reap the efficiencies of technology and industry-leading processes to boost productivity.
As China and emerging Asian countries power ahead, they could account for around 58% of global growth by 2050. And the whole of Asia could account for almost half (46%) of the global economy – up from 35% today.
3. Much of emerging Asia can still benefit from a demographic dividend
For a number of markets in Asia, one big economic strength is a more favorable demographic backdrop, with proportionately larger populations of working age at a time when many Western markets are contending with a burgeoning elderly population.
Source: McKinsey & Company - 2020
In some Asian countries, rates of population growth are still impressive – India and Indonesia are expected to see their populations expand by 253 million and 42 million respectively by 2050. In other Asian markets, population growth is less supportive and demographic profiles are less favorable. But other factors should compensate – namely:
- Dependency ratios are set to improve in terms of the ratio of workers to non-workers
This is primarily the case in India, Indonesia and Malaysia. - There is scope for an improving quality of workforce
Education and skills levels in Developing Asia have scope to catch up with developed markets (see Figure 2). This should provide an offset in those countries that are ageing rapidly, specifically China and Thailand.
Figure 2: Emerging Asia can close the economic gap by boosting the quality of its workforce
% of population enrolled in higher education
Source: abrdn, Haver, World Bank (March 2023)
4. As consumption grows, Asia is becoming an engine of growth in its own right
In the near term, Asia’s dominance of global manufacturing is certain to continue. Even given pressures in developed markets to reshore jobs, supply chains are too tightly knit to unravel quickly.
Source: Kharas, Brookings - 2017
But as urbanization expands and personal incomes rise, Asia is also set to be the biggest consumer of the goods and services that it and the rest of the world makes.
China’s consumer market is already 50% the size of the US’s. By 2050, we predict it could be almost 10% larger at $25 trillion – see Figure 3.
Much will depend on China pivoting from an investment-intensive to a consumption-led growth model. But even if this pivot is gradual, we estimate it will still be the dominant driver of global consumption by the early 2040s.
India’s consumer market is also set to grow fourfold over the next 30 years. Emerging Asia is set to more than double. By comparison, euro area consumption is only expected to grow 18% over the same period.
Figure 3: Asian growth is rotating towards the consumer
Consumption, $ trillions
Source: abrdn, Haver (March 2023)
Forecasts are offered as opinion and are not reflective of potential performance. Forecasts are not guaranteed and actual events or results may differ materially.
Figure 4: The Asia shopper: How spending is changing
5. Urbanization will drive infrastructure demand
With rapid economic development and in many cases still growing populations, Asia needs more transport, more homes and other buildings, and more public-service infrastructure. All of this infrastructure demand will drive capital expenditure and economic activity.
Source: abrdn, Haver – March 2023
Urbanization rates provide a good guide to judge how much pent-up infrastructure demand there may be. Figure 5 shows that less-developed countries – especially those in Asia – are only 40-60% urbanized. As urbanization expands, it should drive construction activity and a concomitant rise in economic activity (GDP) - even in those Asian markets where demographic factors are not so supportive.
Indeed, our calculations suggest that Asia will account for half of all global investment up to 2050 – potentially $390 trillion (2015 USD terms).
Figure 5: Capital expenditure will rise as Asia urbanizes
Urbanization (%) VS GDP per capita
But what about Asian asset prices?
Whether emerging Asian economies can deliver this expected outperformance does, of course, still depend on a multitude of factors, such as the strength of government institutions and the ability to navigate political pressures, economic imbalances and other macro risks.
The good news is that these uncertainties are already priced in – as reflected in the discounts in emerging markets assets relative to developed markets (see Figure 6). With forward price-earnings ratios trading below their 30-year averages, the value available in these markets – given the powerful and positive drivers we have outlined here – is clear to see.
Figure 6: Emerging market assets still trading below their long-term average
In short – Asia’s foundations for outperformance are in place
In any country or region, long-term economic growth requires three things: an increasingly skilled workforce, investment in infrastructure, equipment and technology, and improving productivity.
Emerging Asia has the building blocks for long-term growth
Asia’s emerging markets – from China to India, to Indonesia and Vietnam – demonstrate all three of these essential building blocks.
Across the region, we see the structural drivers for economic growth to outperform both developed markets and other emerging markets.
The Asian century is only just beginning.
IMPORTANT INFORMATION
For professional and institutional investors only – not to be further circulated.
In the United States, abrdn is the marketing name for the following affiliated, registered investment advisers: abrdn Inc., abrdn Investments Limited, abrdn Australia Limited, abrdn Asia Limited, Aberdeen Capital Management, LLC, abrdn ETFs Advisors LLC and abrdn Alternative Funds Limited.
Any data contained herein which is attributed to a third party (“Third Party Data”) is the property of (a) third party supplier(s) (the “Owner”) and is licensed for use by abrdn**. Third Party Data may not be copied or distributed. Third Party Data is provided “as is” and is not warranted to be accurate, complete or timely. To the extent permitted by applicable law, none of the Owner, abrdn** or any other third party (including any third party involved in providing and/or compiling Third Party Data) shall have any liability for Third Party Data or for any use made of Third Party Data. Neither the Owner nor any other third party sponsors, endorses or promotes any fund or product to which Third Party Data relates. **abrdn means the relevant member of abrdn group, being abrdn plc together with its subsidiaries, subsidiary undertakings and associated companies (whether direct or indirect) from time to time.
The information contained herein is intended to be of general interest only and does not constitute legal or tax advice. abrdn does not warrant the accuracy, adequacy or completeness of the information and materials contained in this document and expressly disclaims liability for errors or omissions in such information and materials. abrdn reserves the right to make changes and corrections to its opinions expressed in this document at any time, without notice.
Some of the information in this document may contain projections or other forward-looking statements regarding future events or future financial performance of countries, markets or companies. These statements are only predictions and actual events or results may differ materially. The reader must make his/her own assessment of the relevance, accuracy and adequacy of the information contained in this document, and make such independent investigations as he/she may consider necessary or appropriate for the purpose of such assessment.
Any opinion or estimate contained in this document is made on a general basis and is not to be relied on by the reader as advice. Neither abrdn nor any of its agents have given any consideration to nor have they made any investigation of the investment objectives, financial situation or particular need of the reader, any specific person or group of persons. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of the reader, any person or group of persons acting on any information, opinion or estimate contained in this document.
This communication constitutes marketing, and is available in the following countries/regions and issued by the respective abrdn group members detailed below. abrdn group comprises abrdn plc and its subsidiaries:
United Kingdom (UK) abrdn Investment Management Limited registered in Scotland (SC123321) at 1 George Street, Edinburgh EH2 2LL. Authorised and regulated in the UK by the Financial Conduct Authority.
Europe1, Middle East and Africa 1In EU/EEA for Professional Investors, in Switzerland for Qualified Investors - not authorised for distribution to retail investors in these regions.
Belgium, Cyprus, Denmark, Finland, France, Gibraltar, Greece, Iceland, Ireland, Italy, Luxembourg, Netherlands, Norway, Portugal, Spain, and Sweden: Produced by abrdn Investment Management Limited which is registered in Scotland (SC123321) at 1 George Street, Edinburgh EH2 2LL and authorised and regulated by the Financial Conduct Authority in the UK. Unless otherwise indicated, this content refers only to the market views, analysis and investment capabilities of the foregoing entity as at the date of publication. Issued by abrdn Investments Ireland Limited. Registered in Republic of Ireland (Company No.621721) at 2 -4 Merrion Row, Dublin D02 WP23. Regulated by the Central Bank of Ireland. Austria, Germany: abrdn Investment Management Limited registered in Scotland (SC123321) at 1 George Street, Edinburgh EH2 2LL. Authorised and regulated by the Financial Conduct Authority in the UK. Switzerland: abrdn Investments Switzerland AG. Registered in Switzerland (CHE-114.943.983) at Schweizergasse 14, 8001 Zürich. Abu Dhabi Global Market (“ADGM”): Aberdeen Asset Middle East Limited, 6th floor, Al Khatem Tower, Abu Dhabi Global Market Square, Al Maryah Island, P.O. Box 764605, Abu Dhabi, United Arab Emirates. Regulated by the ADGM Financial Services Regulatory Authority. For Professional Clients and Market Counterparties only. South Africa: abrdn Investments Limited (“abrdnIL”). Registered in Scotland (SC108419) at 10 Queen’s Terrace, Aberdeen AB10 1XL. abrdnIL is not a registered Financial Service Provider and is exempt from the Financial Advisory And Intermediary Services Act, 2002. abrdnIL operates in South Africa under an exemption granted by the Financial Sector Conduct Authority (FSCA FAIS Notice 3 of 202 2) and can render financial services to the classes of clients specified therein.
Asia-Pacific, Australia, and New Zealand: abrdn Australia Limited ABN 59 002 123 364, AFSL No. 240263. In New Zealand to wholesale investors only as defined in the Financial Markets Conduct Act 2013 (New Zealand). Hong Kong: abrdn Hong Kong Limited. This document has not been reviewed by the Securities and Futures Commission. Malaysia: abrdn Malaysia Sdn Bhd, Company Number: 200501013266 (690313 -D). This document has not been reviewed by the Securities Commission of Malaysia. Thailand: Aberdeen Asset Management (Thailand) Limited. Singapore: abrdn Asia Limited, Registration Number 199105448E.
AA-020623-163626-1