Asia will drive economic growth this year
Asia’s economic strength and rising middle class will drive global recovery this year and beyond. The International Monetary Fund recently updated its global economic forecasts, with India’s GDP forecast to increase by 11% in 2021, China’s by 8.3% and the ASEAN-5 by 5.2%. This compares with growth forecasts of 4.2% for Europe and 5.1% for the United States. In 2020, Asia’s GDP overtook the GDP of the rest of the world combined. China’s recently concluded Two Congresses session set a GDP growth target of 6+% for 2021. By 2030, Asia is expected to contribute about 60% of global growth[1].
Here are economic and consumer trends to watch in 2021 and beyond:
While the US and Europe have stagnating middle class populations, Asia’s middle class is forecast to grow from 2 billion in 2020 to 3.5 billion by 2030[2]. E-commerce in Asia is on the ascent faster than in the U.S. and Europe[3]. As a result of this trend, digital advertising and marketing spends are also rising.
Asia’s youth population (age 15–24) exceeds 750 million people, which is 60% of the world’s total [4]. They are driving transformative change across the region. Economic growth will need to remain strong to provide employment for this massive and restless labor force. Asians are marrying later. School enrollment levels for young women are approaching that of young men. Mobile is their platform of choice, because many areas still lack fast and reliable internet service. During COVID lockdowns, young people across the region reported making greater use of online shopping, food delivery services, online education, e-banking and e-wallet apps.
Consumers are showing a preference for national over multilateral brands. India and China are two markets where this is being promoted as national policy. In India, Prime Minister Modi’s strategy to boost economic growth is to prioritize on domestic manufacturing and supply chains (Make in India) and encourage consumers to support Indian brands. In China, consumers are increasing purchases from homegrown rather than global brands. This trend, known as Guo-Chao — meaning “country style,” was already underway due to trade tensions and the growing popularity of Chinese brands but has been accelerated by COVID-19.
Global luxury brands will continue to pivot away from waning U.S. and European markets to chase Asia’s growing wealth class. With international travel restrained until the pandemic is brought under control globally, Asian spending will take place in domestic markets rather than in traditional luxury destinations such as London, Paris and New York.
The COVID pandemic has accelerated digitalization across the region, with many governments now incentivizing the digital economy in the healthcare, education, retail, agriculture and logistics sectors to achieve greater sustainability and more inclusive post-pandemic growth. This includes digitalization efforts in small- and medium-sized enterprises across Southeast Asia, where the effort could add as much as $1.1 trillion to GDP values across the region by 2025. Japan’s government has also embarked on a national digitalization initiative.
China remains a global manufacturing and raw materials powerhouse and will continue to attract high levels of foreign investment to move up the manufacturing value chain, even as some companies diversify their global supply chains. China’s next 5-year plan is prioritizing research and development in several technology sectors, including AI, quantum computing, rare earth minerals, robotics, genomics and biotechnology, among others. China was the largest recipient of foreign direct investment (FDI) in 2020, despite the global coronavirus outbreak and trade tensions, with $163 billion in inflows[5]. India and Vietnam are seeking increase supply chain-related foreign investment. The European Union and China are seeking to finalize an investment agreement.
Asia is adopting a heightened focus on sustainability. Prior to the pandemic, Asian consumers were already showing more attention towards sustainability. Reduced air pollution during the lockdown may drive greater public support. China, Japan and South Korea have set net zero-emission target dates. Asia is at high risk for climate impacts. Many millions of people live in the path of seasonal monsoons, typhoons and melting Himalayan glaciers. Agricultural systems will be impacted by rising temperatures, changing rainfall patterns and drought. India and China account for more than one third of the world’s population, so their climate actions impact everyone.
Asian companies are well positioned to address the climate challenge and secure economic opportunities that may come from managing it. Infrastructure is still being built out in many parts of Asia, which gives the region a chance to build more resilient. Economies such as China, South Korea and Japan are innovating green technologies, from electric vehicles to scaling up renewable energy.
[1] Source: International Monetary Fund, Global Economic Outlook, Jan 2021
[2] Source: World Economic Forum
[3] Source: Statista
[4] Source: United Nations
[5] Source: United Nations Conference on Trade and Development
Edited by Emily Winston
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