What are the main growth drivers of Asian economies?
One of the most important factors that determine economy’s long-term growth potential is the working age population growth. Thus, growing working age population consumes more, requires functional infrastructure and uses more services. Demographic factors, however, determine for how long working age population is growing. For example, if large proportion of population is younger than 30 years old, the longer the working age will keep on growing, thus making growth structurally sound and healthy. In table below illustrates different Asian countries working age population growth for the period 2015-2020.
Country Population 2012 (million of people) Working age population growth 2015-2020 % Working age population growth 2015-2020 in absolute terms Philippines 98 10 % 9,8 milj. Malaysia 30 8,5 % 2,6 milj. Vietnam 89 11 % 9,8 milj. India 1210 7,2 % 87,1 milj. Indonesia 245 5,8 % 14,2 milj. Thailand 66 1,2 % 0,8 milj Singapore 5 0,1 % 0,0 milj China 1355 -0,8 % -1,4 milj Korea 50 -2 % -1 milj Taiwan 23 -2,4 % -0,2 milj Japan 127 -4 % -5,1 milj
In South-East Asia labor costs are considerably lower compared to North-Asian countries such as Korea, Taiwan, Japan and China. Thus, FDI (Foreign Direct Investment) flow towards SE-Asia is naturally increasing at healthy pace as new factories are being set up in low-labor cost countries. In addition, a young and growing middle income class is also attracting FDI as companies wish to be closer to the customer.
Infrastructure investments in Asia have been growing steadily but there are large differences between different countries. For example, in North-Asian countries such as Japan, Korea and Taiwan infrastructure is already relatively advanced and infrastructure investment growth rates have slowed down. However, in our focus countries (Indonesia, the Philippines, Vietnam and India) infrastructure needs are very large and long-term in nature. Only in ASEAN countries infra-investments are projected to grow by 12% annually until 2025 – major part of this growth is going to happen in Indonesia due to the fact that after the late 1990s Asian financial crises, Indonesia focused mainly on improving its balance sheet and paying back debt. Thailand, meanwhile, after the Asian financial crises, focused heavily on building infrastructure in order to grow its way out of the crises. Therefore Indonesia’s state of infrastructure is now lagging other parts of SE-Asia.
Cement consumption is the key factor to follow in order to know where in the structural growth phase we are. Still a long way to go before the strongest phase slows down.
The first decade of this millennium was characterized by strong global growth, but especially in the western countries this growth was created largely by debt. Now, as we are in the latter part of the second decade of this millennium, global growth rates have decelerated markedly as debt levels reached their peak in the western world while interest expenses are eating away most of the growth. However, in our focus countries in SE-Asia, population is mostly very young, structural growth drivers of the economies are set to create growth irrespective of global demand situation and debt levels are relatively low – thus growth rates have remained relatively stable. We think that countries with large and young population will continue to post healthy growth rates in the foreseeable future.
Members are Indonesia, Thailand, the Philippines, Malaysia, Singapore, Vietnam, Myanmar, Cambodia, Laos and Brunei.
• If ASEAN was one country, it would be the 7th largest economy globally.
• There are more than 660 million people in ASEAN, that is considerably more than in the EU or the US.
• ASEAN labor force is growing annually by 1.6% or by 8.4 million people.
• By far the largest ASEAN member economy is Indonesia , with around 36% share.