Asia at a Crossroads: Demographics, Economics & Investment
In this paper, we highlight the demographic variations across ten select Asian countries and discuss how these affect their growth, GDP per capita, debt, pensions and capital markets. The countries are: China, Hong Kong, India, Indonesia, Japan, Malaysia, Singapore, South Korea, Taiwan and Thailand.
Demographic Diversity: Asia is very demographically diverse in terms of people characteristics (i.e. those of “consumers and workers”) and standard metrics like population growth, dependency ratios, life expectancy and fertility rates. It has rich aged countries as well as poor young countries, while some countries are growing older before they grow richer. Overall, its populations are no longer growing as fast as the world average and are no longer as young.
Demographic Transition: Asia’s demographic transition has had a significant impact on its labour force, growth, consumption, savings, productivity and inflation. While some countries should still reap their demographic dividend (responsible for 30% to 40% of Asian growth in the 1980s–1990s), this cannot be sustained without holistic policy reforms.
Economic Growth: Economic growth is composed of growth in working age population, productivity growth and labour utilisation growth which is related to changes in the number of hours worked. Asia needs to draw on at least two of these contributing factors to generate sustained economic growth, typically by implementing education, migration and labour market reforms, especially in those countries attempting to escape the middle-income trap.
Inflation: Demographics are a major long-term contributor to inflation from both the demand and supply side. Understanding trends in consumer behaviour, income, wealth across age brackets and other demographic characteristics within Asia is core to understanding its inflation, as well as monetary and fiscal policy.
Capital Flows: Demographics influences current account and capital flows. In a globalised world, we find that Asian economies appear to be more vulnerable to shocks from China, Japan, the US and the EU. Asian economies need to safeguard against projected capital outflows due to changes in policy rates, expected returns and greater stability elsewhere.
Pensions: Asia is in a better position than many Western countries to manage the challenges of an aging population. With high savings rates and long working lives, Asia’s social security systems can avoid making the sort of long-term unsustainable promises that have created a burden for Western economies. Instead, Asia can consider different cost-effective insurance and market solutions depending on a country’s longevity rates, healthcare systems and the changing lifecycles of consumers and workers.
Capital Markets: Many Asian countries would benefit from deepening their domestic capital markets, transforming local savings into profitable investments that would support retirees, as well as increase the resilience of local assets.
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