Asia leading the way

Asia is moving into a leadership role in the world economy

Anoop Singh

The recent crisis has underlined the emergence of Asia as a global economic powerhouse. Several dynamic economies in the region are generating growth outcomes that register on a global scale and are helping pull the world economy out of recession. China and India are leading the way, but the phenomenon is by no means limited to these two countries. Asia’s economic importance is unmistakable and palpable.

Based on expected trends, within five years Asia’s economy (including Australia and New Zealand) will be about 50 percent larger than it is today account for more than a third of global output, and be comparable in size to the economies of the United States and Europe. By 2030, Asian gross domestic product (GDP) will exceed that of the Group of Seven major industrial economies (G-7) (see Charts 1 and 2). It is only natural, then, for Asia’s voice to become increasingly influential in global economic and financial discourse. Already, six of the Group of 20 major economies (G-20) are from the Asia-Pacific region. Asia accounts for just over 20 percent of IMF voting shares, and this weight is certain to rise as the IMF pursues reforms to bring countries’ voting shares more closely in line with their role in the world economy. With the right policies, this economic success is likely to continue and further improve living standards for Asian people, transforming the livelihoods of almost half the world’s population.

Consolidation of the recovery is still the main challenge for the world economy. Although Asia was not heavily exposed to the kinds of toxic securities that caused problems elsewhere, the region is an important participant in world trade, and its exports were hurt by the collapse in demand from advanced economies. The impact of the external shock was mitigated for countries with large domestic demand bases, such as China, India, and Indonesia, and some of the commodity producers, such as Australia, but the more export-oriented economies experienced particularly sharp downturns. However, economies across the region rebounded strongly, and by end-2009 output and exports had returned to precrisis levels in most of Asia, including in the hardest-hit economies.

New growth frontiers

Infrastructure, vital aspect of development. File photo

At least two notable features mark the ongoing global recovery from Asia’s perspective. First, unlike in previous global recessions, Asia is making a stronger contribution to the global recovery than any other region. Second, also in contrast to previous episodes, recovery in many Asian countries is being driven by two engines-exports and strong domestic demand. Strong domestic demand reflects in part policy stimulus, but resilient private demand is also a factor. All this adds up to an impression that Asia is changing in key ways and that these changes have implications for the rest of the world. Although there are still near-term risks in the outlook, in many ways, Asia is emerging from the recession with its standing in the world strengthened. The risks include Asia’s (and other regions’) vulnerability to renewed negative shocks to global growth and financial markets. Nonetheless, the possibility that Asia could become the world’s largest economic region by 2030 is not idle speculation.

It seems very plausible, based on what Asia has already achieved in recent decades: emerging Asia’s share of world trade has doubled and of world GDP tripled in just the past two decades.

Finance and Development, June 2010, Volume 47, Number 2

To be continued