Asian Growth

A new reality is emerging in Asia. In recent decades, many of Asia’s economies have boomed.

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A new reality is emerging in Asia. In recent decades, many of Asia’s economies have boomed. The region today accounts for about 40% of the world’s GDP – up from 25% in 1990 – and contributes about two-thirds of global economic growth.
There’s more. Asia has made unprecedented strides in reducing poverty and improving broad development indicators. The poverty rate fell from 55% in 1990 to 21% in 2010, while education and health outcomes have improved significantly. Hundreds of millions of lives have been improved in the process. And, looking ahead, Asia is expected to continue to grow at an average annual rate of 5%, leading global economic expansion.

But today, the region is facing challenging new economic conditions. With growth in advanced economies tepid, risk aversion increasing in global financial markets, and the commodity super-cycle coming to an end, the world economy is providing little impetus to Asian growth.

At the same time, China is moving toward a more sustainable growth model that implies slower expansion. Given the growing links between China and the rest of the world, particularly Asia, the spillover effects are significant. Indeed, China is now the top trading partner of most major regional economies, particularly in East Asia and ASEAN. New research by the International Monetary Fund, to be published in next month’s Regional Economic Outlook for Asia and the Pacific, suggests that the median Asian country’s economic sensitivity to China’s GDP has doubled in the last couple of decades. So China’s slowdown means a slower pace of growth across Asia.

Asia’s achievements in recent decades attest to the hard work of the region’s people, as well as to the soundness of the policies that many Asian governments have adopted since the late 1990s, including improved monetary-policy and exchange-rate frameworks, increased international reserve buffers, and stronger financial sector regulation and supervision. Against this backdrop, the region attracted vast amounts of foreign direct investment.

As trade links expanded, a sophisticated network of integrated supply chains emerged, creating the conditions for Asia to become a manufacturing powerhouse and, increasingly, an exporter of services as well. More recently, thanks to strong policies and ample reserves, the region quickly recovered from the global financial crisis. Asia also benefited during these years from strong global tailwinds, including favorable external financing conditions and the rapid expansion of the Chinese economy.
Amid this new testing reality now dawning in Asia, we must not lose sight of the deep, and long term, structural challenges facing the region. Populations are rapidly aging and even declining in countries like Japan, Korea, Singapore, and Thailand, dragging down potential growth and putting pressure on fiscal balances.

Income inequality is a further challenge. While inequality has remained stable or declined in Malaysia, Thailand, and the Philippines, it is rising in many parts of the region, most notably in India and China (as well as other parts of East Asia). In many emerging markets and developing countries, widespread infrastructure gaps persist, notably in power and transport. And, elsewhere in the region – the small Pacific islands in particular – vulnerability to the effects of climate change is increasing.

This shifting landscape calls for bold action on several fronts. While the response will certainly need to be tailored to each country’s specific circumstances, some recommendations could be helpful for most countries:
· Because inflation remains low a
cross most of the region, monetary policy should remain supportive of growth in case downside risks materialize.
· Exchange-rate flexibility and targeted macroprudential policies should be part of the risk-management toolkit.
· Countries need to deepen their financial systems to channel the large pool of domestic and regional savings toward financing their development needs; closing the region’s infrastructure gaps, for example, remains critical.
· Structural reforms, aided by fiscal policy, should support the economic transitions and rebalancing, while boosting potential growth and alleviating poverty.

The good news is that Asia, as demonstrated by its strong performance in recent years, can meet these challenges and continue to build upon the significant achievements of the past two decades. It has the resources and the people; it has the buffers and resilience; and it has ample opportunities for further trade and financial integration.

To discuss these challenges, the government of India and the IMF are organizing the Advancing Asia conference in New Delhi on March 11-13, bringing together regional policymakers and thinkers. India, a bright spot among emerging markets in these difficult times – indeed, the world’s fastest growing major economy – is an auspicious place to hold this gathering.
Our mutual aim in convening with Asian policymakers is clear and critical, for Asia and for the global economy: to ensure that growth in Asia continues to be robust, sustainable, and inclusive, so that the region remains a powerful locomotive for global growth.

Adapted from project-syndicate.

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15 Comments


  1. Asia’s economy has boomed in the past few decades. However, they are starting to face challenges in the contemporary economy. China is the leader of the Asian economy. It has been supported that many countries have shown increasing dependence on the health of the Chinese economy. Strong monetary policies have led to China’s growth and stability. Challenges include aging populations and income inequality in Asian countries. However, the author provides solutions and shows a positive outlook on the future of Asian economies.

    Reply

  2. There has been a recent boom of economic growth in Asia, with China being the forefront of this economic growth. If China’s economy is growing, Asia’s economy as a whole grows and vice versa. There have been several challenges however, such as income inequality, and putting stress on declining populations in several countries. Author mentions several improvements that Asian countries should consider, and countries will be discussing these challenges and possible solutions at a meeting in New Delhi.

    Reply

  3. New Reality= China Rich
    China economic progress= rest of Asia
    Multiple Reasons for China growth= Hard working, good policies, etc
    Challenge of New reality = Income equality, Aging Population, etc ==> India to help with challenges

    Reply

  4. Asia’s economy is vastly developing and becoming stronger. One of the major components to this is China’s economy and trading which increases the amount of economic activities. However, there are some setbacks within the Asian’s economy. China’s economy is slowing down and there are issues like income inequalities in other countries such as Japan and Thailand. Nonetheless, the Asian countries can still further develop if they meet certain requirement/challenges and continuously build.

    Reply

  5. India and also all the colossal Asian country is playing a very big role towards making the world economy inflation in a very vigorous manner.

    Reply

  6. Asia has made great economic strides in the past few decades, but it has some dangers lying ahead in the near future. In order to keep it strong, there are certain actions that must be taken to benefit the Asian economy. It still has a lot of potential to progress and lead in the world economy.

    Reply

  7. Asia is becoming more and more stronger in terms of economy.
    especially china’s growth (china’s spillover effect has tremendous effect)
    author is + about asia’s future as well.
    though there are a few downfalls ; population, inequality. asia can overcome the downfalls by author’s recommendation.
    asia has bright future.

    Reply

  8. MI: Asia has had huge growth as a global economic power, most notably China. Author tone: Admiration, gives multiple reasons for success of Asian countries, spirit of people, policy-making and confident that although some issues are emerging and may be in need of attention (rates of inequality, aging pops, even climate changes) Asian countries will be consistent and as successful in meeting challenges as have demonstrated over the last decades.

    Reply

  9. The economic growth in Asia has been profound in the last quarter century. As it continues to drive and influence global markets, its rapid growth must be carefully monitored to secure a balanced and sustainable plan for generations to come.

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  10. MIP = Asia growth = hard work + sound policies but they also have other problems as well that could be resolved by reform, sound policies and self financing b/c Asian growth = global growth

    Reply

  11. Asia = economical boom, new challenges exist —-> Asia can overcome them and continue to grow.

    Reply

  12. Asia economy strong, Asia’s economy is being challenged

    Reply

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