Macroscope | How Asian economies can rev up their economic engines as manufacturing growth slows

Asia’s slowing economic growth is poised to reshape the existing development model towards a more service-oriented and integrated economy.  

Burgeoning domestic consumption and economic recovery in the US and Europe helped the region remain a major driver of the world economy. But, the World Bank expects the East Asian and Pacific region to grow at an annual rate of 6.3 per cent, 6.1 per cent and 6 per cent in 2018, 2019 and 2020 respectively, still faster than the world average but below an expansion of 6.6 per cent in 2017 and 6.3 per cent in 2016. The International Monetary Fund and Asian Development Bank have also projected lacklustre growth.  

In the short term, Asia’s exposure to trade and foreign capital means it will suffer greatly from rising trade protectionism and financial tightening. A large part of the growth slump can be ascribed to China entering the “new normal” of slower but quality growth. The double-digit growth before the 2008 financial crisis has settled into the 6 to 7 per cent band since 2015. The US$12 trillion Chinese economy – larger than the rest of East Asia-Pacific combined – coupled with its central role in the regional production networks and growing outward investment, means that when China sneezes, the region catches a cold.  

However, even excluding China, Asia’s growth slowdown will be broad-based in the long run. First, labour supply is constrained by an ageing population. Japan will see its 127 million population shrink by one-third by 2060, with 38 per cent aged above 65. Unfavourable demographic markers are not only seen in developed economies, but also emerging economies such as Thailand and Vietnam.