Share prices have plunged by more than two-thirds of their 2007 peak, exports languish on docks, and investment and consumer spending are dented.

Yet, with strong fundamentals, in particular a substantial cushion of external reserves and strong corporate and banking sectors, Asia is far better positioned to withstand this downturn than in recent decades. The International Monetary Fund projected that annual average growth in developing Asia would slow to 5.5% this year (down from 7.8 % in 2008). But it would still be much stronger than the world growth, which is projected to fall to 0.5% in 2009, its lowest rate since World War II.

Beyond the current crisis, prospects for Asia look strong. It is possible for Asia to become the economic center of gravity in the 21st century. With 60% of world population, Asia now generates around 32% of global output (adjusted for purchasing power) and has over half of all foreign exchange reserves. According to estimates by the Asian Development Bank, Asia’s share of global economic output in 2050 will increase to 50%.

If this eventuates, it will not be so much about a new, emerging economic power as about the Asian continent reclaiming its traditional status. Well into the 18th century, Asia, with China and India in the lead, was the most important economic region in the world, accounting for more than 60% of global output. As industrialization progressed, Western industrial nations caught up, and Asia’s share fell to 17% in the 1970s and 1980s. Only with the fall of the Iron Curtain and the triumph of market economies over centrally planned ones did Asia begin to catch up.

GLOBALIZATION AND DEMOGRAPHY are the two sustainable and positive long-term trends on which the recent Asian boom rests. Thanks to Internet technologies and to many countries opening up to the market economy, globalization has reached new intensity. Asia has been a beneficiary. In fact, between 1990 and 2006, according to the IMF, the volume of exported goods and services in emerging countries of Asia increased as much as ninefold in some areas.

Also striking is that the export share of high-tech products has grown constantly. Asian companies are already among the market leaders in the fields of electrical engineering, semiconductor technology and shipbuilding. These companies can recruit from a large, well-trained workforce. In China, 440,000 engineers graduate annually from universities, and Asians are the largest group of foreign students in the US, bringing a huge amount of know-how back home.

World trade is not the only major growth factor – economic expansion is also fueled by demographic developments. Approximately 60% of the world’s population already lives in Asia and, outside of Japan and China, the population is still growing. With two babies born in Asia every second, the continent will be home to a further 1.3 billion by 2050. The UN estimates in the same period Europe’s population will shrink. As for age structure, 1.8 billion Asians are under 24. The figure is 200 million and 118 million for Europe and North America respectively, a clear indication that Asia will be the workbench of the future.

In Asia the megatrends of globalization and demography are highly concentrated, as reflected in the growing prosperity of the region. While the per capita income of G7 states has increased by 50% in the last 10 years, that of Asia has doubled. In China, wages even tripled in this period. Admittedly, the gap to the absolute income levels of industrial nations is still wide, but Asia is rapidly gaining. What distinguishes this process of growth is its widespread prosperity, as evident in the emergence of a new middle class in Asia. A recent study by the World Bank estimated that by 2030, China and India will account for around 44% of the global middle class (defined in terms of per capita income). This means 400 million consumers with significant purchasing power and ideas of appropriate living standards based on Western role models. This middle class, with savings and low debt level, is lending stability to the economies of Asia.

EVEN IF, IN THE SHORT TERM, the Asian continent cannot entirely detach itself from the economic situation affecting in the US and Europe, its economy is increasingly resistant toward external influences. Alongside strongly growing domestic markets, the capital base of Asian countries has also risen. Asian economies hold the largest foreign exchange reserves in the world (over $3 trillion), national debt is low in comparison with industrial nations, and the mountain of corporate debt has significantly declined in recent years. Taken together, Asia’s economic power has not just grown in terms of quantity, but also quality, providing it with the potential to become the 21st century’s economic center of gravity. 

Published by PROJECT M in June 2009

(Photo: eightfish/gettyimages)