Over the last couple of decades, Asia has become a key player in the global economy and today the region’s continued dynamism may be ascribed to the role played by China and India with earthquake hit-Japan lagging somewhat behind.
A closer look at the key numbers suggests that the rise of Asia is no myth. Asian stock markets make up 35% of global market capitalization which is much ahead of America (33%) and Europe (27%). Similarly, central banks hold two-thirds of all foreign-exchange reserves.
In terms of Purchasing-Power Parity (PPP), Asia’s share of world economy has risen more progressively, from 27% in 1995 to 34% in 2009 and is expected to cross 50% in 2011. Asia accounts for one-third of world retail sales and has now emerged as the biggest market for many products, accounting 35% of all car sales and 43% of mobile phones. At these growth rates, reports indicate that Asian economies will probably exceed the combined sum of the US and Europe within four years. Based on current trends, the gross domestic product of Asian economies will exceed that of G7 nations and will be half the size of the G20, 20 years from now.
Unbelievable Trends
Amidst rising Asia’s leadership opportunities, the weight of the world’s economic activity is shifting from G7 countries toward emerging powers in Asia and Latin America. In the coming decades, the trend is expected to accelerate as Asia will be the heart of the new global economic order as China and India evolve. Economists expect Asia to rise to the challenge and play a more prominent role in the changing economic landscape. Donald Tsang, Chief Executive of the Hong Kong Special Administrative Region says, “Asian economies, by working together, can lay a solid foundation for sustainable economic development and play a more prominent role in the changing economic landscape.
This way Asia can play a more constructive role in reengineering and reshaping the global financial architecture.” Echoed by the Organisation for Economic Cooperation and Development (OECD), developing nations, including India will account for 60% of the global output on purchasing power parity by 2030 going by rapid economic growth and increasing domestic consumption. Economists say Asia’s emerging role is not a single standalone event, but the sign of an important structural transformation in the global economy. Based on the flourishing economic policies, the region will continue to play a key role in both global economic growth and the design of policies to deal with challenges in the post-crisis era.
Challenges
Nevertheless, the region’s rapid growth will no way continue automatically and it still needs to build robust policies to address the challenges it faces both in the short and the long-term. There are significant macroeconomic risks beyond just regular measures of government’s fiscal policies. It has significant long-term development needs, including infrastructure and education. To continue private domestic demand, Asian economies must nurture thorough policy measures which will vary from country to country as some will need to increase consumption, sustain and increase investment especially in infrastructure while others must need to boost productivity in the service sector.
Managing growing capital flows is another challenge as economists say surging capital flows will need to be carefully managed to avert overheating in some economies and to prevent an increase in those countries’ vulnerability to credit and asset price cycles and macroeconomic volatility. To sustain the growth tempo, Asian economies need to replace the sluggish demand from advanced economies as their demand remains below pre-crisis levels. Weaker demand in advanced economies would disorder Asia’s export markets.
Although Asian countries have made tremendous progress in poverty reduction, still a high proportion of the world’s poor live still in the region. According to World Bank estimates 2010, 17% of the people in the East Asian and Pacific countries and 40% of the people in South Asia are living in poverty as a result of the global financial crisis. Asian economies are still struggling to move from agriculture to manufacturing as a basis for long-term growth.
Global Engines of Growth
Without doubt, Asia has been one of the key engines of the worldwide rebound. The rapid economic growth of emerging economies has resulted in a global economic power shift. Asia is experiencing potentially a historic movement, a crusade of transformation. However, it is not going to be easy for the Asian economies as the outlook for the global economy and sovereign credit is at a critical and uncertain juncture. Asia’s future economic resilience rests on the economies capability to shift away from export-driven markets.
Economists remain cautiously optimistic about the pace of global recovery and foresee dangers ahead. According to Olivier Blanchard, Chief Economist, IMF: the recovery depends “How Europe deals with fiscal and financial problems, how advanced countries proceed with fiscal consolidation, and how emerging market countries rebalance their economies, will determine the outcome.” Going forward, Asia has a crucial role to play and by working together they will find the way to sustain economic success not only for the region but for the world economy as well.
N Janardhan Rao, Senior Economist.
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