World Economy Bouncing Back After the Pandemic Slowdown

Countries in the Asia-Pacific region reacted quickly to the COVID-19 pandemic and implemented lockdown measures. Recovery and growth has taken place since then, although North Asian countries are outperforming those in the south. According to McKinsey, Asia is on track to drive 50% of the world’s consumption by 2040, which represents a shift in the world’s center of gravity.

Uneven post-pandemic recovery

When looking at Asia GDP growth, Portfolio Managers of the Henderson Far East Income Trust offer several reasons why North Asian countries are currently performing better than South Asian countries. The first reason they offer is that countries like China, and Taiwan, were first into the pandemic and started returning to normal life while other countries were still in lockdown.

Countries in Southeast Asia, such as Indonesia, Malaysia and the Philippines, were slower to react, struggled to contain the virus and are recovering more slowly. For example, China’s GDP growth was 2.3% in 2020 and 8.0% in 2021, compared with GDP growth in the Philippines of -9.6% in 2020 and 3.2% in 2021.

The uneven distribution of vaccines in the North and South has also contributed to the rate of recovery. China has fully vaccinated about 83% of its population, while countries like Indonesia and the Philippines have only vaccinated about 40% of their populations.

The industry make-up of countries in the South and North also plays a part. Tech companies hardly feature in Malaysia, Thailand and the Philippines, whereas tech makes up 72% of Taiwan's index and 47% of South Korea's.

Asia - the fastest-growing region globally

Asia’s share of the world GDP is rising, and it is the fastest-growing region globally. The common thread across this very diverse region is an upward movement in various economic and social indicators.

Asian consumers are becoming a force in the global economy. The Asian middle class is rising and becoming a large market for goods and services. The most striking rise in consumption has occurred in China, and growing wealth has created an affluent class of consumers. Asian consumers are increasingly likely to set trends for the rest of the world.

Rapid technological advancement and adoption is strengthening the digital infrastructure and bringing more efficiency. China, South Korea, Singapore and Japan are among the most digitally advanced nations in the world. Asia has ample venture capital to support entrepreneurship and technological innovation. Innovation hubs are taking root, and China is a global leader in the field of AI development.

Cities drive growth, and in 2030, seven out of 10 of the world’s largest cities will be in Asia, according to Mckinsey. Urbanization will open doors to education and public health services.

Potential for growth in Southeast Asia

In Thailand, tourism accounts for about a fifth of GDP. The pandemic dealt a massive blow to the economy, particularly small and medium-sized businesses. Similarly, in the Philippines, the economy is dependent on services, agriculture and manufacturing. Businesses were forced to close, and some of them still have restrictions in place, thanks to the Omicron variant.

Southeast Asia has great growth potential, despite the challenges countries are facing now. As global travel resumes and the service sector fully re-opens, they should experience a strong boost.

A meaningful role in the world economy

Asia is already a hub of world trade and home to some of the largest companies in the world. Over the past 30 years, it has soared in consumption and become an integral part of global flows of trade, innovation, talent and capital. It continues to evolve and is set to develop a more meaningful role in the world economy in the future.