Asia’s long-term growth prospects are underpinned by favourable demographics and room for further productivity.
Investment opportunities across Asia abound – with equity markets that offer earnings growth at attractive valuations, and Asian fixed income issuers that offer value across sectors.
Asia rides at the forefront of sustainability and innovation trends, giving investors a unique opportunity to participate in new growth frontiers.
Asia will play a game-changing role in the global arena due to a confluence of geopolitical, social, economic factors. The diverse Asian landscape lends itself to global businesses and investors who seek a hinterland for shelter from the US-China geopolitical tensions.
In addition to being beneficiaries of the diversification of global supply chains and “near-shoring” of production hubs, Asia’s favourable economic outlook bodes well for global investors.
We see three key themes driving Asia’s resurgence:
Following the end of the pandemic, Asia is set to regain its place as the main engine of growth for the global economy in 2023. This year, we expect the tailwinds from China’s economy reopening to propel GDP growth of 5.9%, almost double its subdued rate of 3.0% growth in 2022.
China’s reopening is likely to increase demand for the rest of Asia’s goods and services and lead to stronger flows of outbound tourism by Chinese citizens. We forecast India’s economy to expand by 5.7% in 2023, the combined ASEAN states of Indonesia, Malaysia, Philippines and Thailand to grow by 4.6%, the original ‘Asian tiger’ economies of Hong Kong, Singapore, South Korea and Taiwan by 1.5% in total and Japan by around 1.0%.
Significantly, China’s reopening will help shield Asian economies this year from recession and stagnation expected in the major economies of North America and Europe. We forecast the US will suffer a recession in the second half of 2023 and its GDP to be unchanged after growing by 2.1% in 2022. We also forecast the Eurozone to experience little or no growth this year after expanding by 3.5% last year and the UK’s GDP to shrink in 2023 after rising by 4.1% in 2022.
The US, UK and Eurozone are suffering from the Federal Reserve (Fed), Bank of England (BoE) and European Central Bank (ECB) raising interest rates aggressively this year after inflation hit four-decade highs last year. The food and energy shocks from the war in Ukraine and the impact on consumer prices from economic activity reopening after the pandemic caused inflation to reach around 10% in US and Europe.
In contrast, Asian economies have been less affected by inflation. Much of the world’s global supply chains run through the region, reducing costs within Asia. Several central banks were early to tighten monetary policy to curb inflationary pressures including the Bank of Korea (BoK) and Monetary Authority of Singapore (MAS) while their peers in US and Europe were slow to start increasing interest rates. Moreover, the People’s Bank of China (PBoC), faced with tame inflation in China and the Bank of Japan (BoJ), determined for inflation to become entrenched around its 2% target after three decades of weak inflation or outright deflation, have not increased interest rates this year, benefiting GDP growth in Asia’s two largest economies.
Longer-term Growth Drivers
Asia’s economies are thus likely to outperform the US, UK and Eurozone this year due to the tailwinds from reopening and lower headwinds from central bank rate rises. Over the rest of the decade, the region is also likely to keep outpacing US and Europe because of favourable longer-term drivers including demographics and a rising middle class.
Firstly, both East and South Asia have more youthful populations – as the chart of World Bank data from Bloomberg shows – benefiting growth over the long term by favouring consumption and investment and restraining healthcare spending.
Within Asia, the share of senior citizens in Japan has increased to almost 30% of the population. But China’s proportion is still below 15% while Indonesia and India’s share are just 7% each.
Secondly, overall development – as measured by per capita GDP incomes – is still much lower across Asia compared to US and Europe, enabling faster long-term growth as the region’s productivity levels catch up through trade, investment and the spread of technology.
Exhibit 1: Share of population aged 65 and above
Source: Bloomberg, Bank of Singapore
For example, average GDP income per head in the US reached a high of USD62k in 2021 in real terms according to the World Bank. Singapore’s GDP per capita was comparable at USD66k while Hong Kong’s, Japan’s and South Korea’s were around USD44k, USD35k and USD33k respectively. But China’s, Thailand’s, Indonesia’s and India’s GDP per capita levels were far less at only USD11k, USD6k, USD4k and USD2k respectively. Thus, Asia’s longer-term growth rates has the scope to remain significantly higher than the US and Europe for the rest of the decade as the region’s lower productivity levels continue to catch up with more advanced economies.
Exhibit 2: Development indicators: East Asia & Pacific and India
Note: East Asia & Pacific region as defined by the World Bank includes China, Mongolia, Cambodia, Indonesia, Korea, Lao PDR, Malaysia, Myanmar, Japan, Hong Kong, Philippines, Singapore, Thailand, Vietnam, etc
Source: World Bank
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