While recent commentary has been focused on China’s post-COVID recovery in the short term, the long-term picture looks unequivocal. According to the research, there are five key reasons why the region is set to dominate global growth.

By 2050, four of the world’s seven largest economies will be in Asia. China looks set to overtake the US as the world’s largest economy by 2035 and India could take fourth place by the early 2030s, according to the abrdn Research Institute (aRI).

A new study shows that Indonesia is set to be the world’s seventh-largest economy by the mid-2040s, with Japan in the fifth spot. This means Asia will dominate the global economy over the second half of this century. The analysis also shows the Philippines, Pakistan, Bangladesh, and Vietnam are all set to be in the top 25 global economies.

Massive Potential for Workers to Move Out of Agriculture

Emerging Asia could account for 58 percent of global growth by 2050. Global growth is set to slow from around 2.5 percent a year to 1.5 percent a year by 2050 – in part due to less support from population growth in the major economies. The analysis shows Asia could still outperform, due to a more favorable demographic backdrop and the opportunity to play catch up with developed peers.

For example, income levels are still relatively low in many Asian countries, there is still massive potential for workers to move out of agriculture and into more productive manufacturing and service jobs, and many Asian firms have yet to reap the efficiencies of technology and industry-leading processes to boost productivity. The whole of Asia could account for almost half (46 percent) of the global economy – an increase from 35 percent today.

Demographic Profiles Less Favorable

Emerging Asia can still benefit from a demographic dividend. India and Indonesia are expected to see their populations expand by 253 million and 42 million, respectively, by 2050.

Although in other Asian markets, population growth is less supportive and demographic profiles are less favorable, research shows, other factors should compensate, such as an improvement in dependency ratios – the ratio of workers to non-workers (primarily the case in India, Indonesia, and Malaysia) – and the scope for an improvement in the quality of the workforce through education and skills development.

China’s Consumer Market

Asia may dominate global manufacturing, but growth is rotating towards the consumer. Despite pressures in developed markets to reshore jobs, supply chains are too tightly knit to unravel quickly. Furthermore, as urbanization expands and personal incomes rise, Asia is set to power global consumption of goods and services.

China’s consumer market is already 50 percent the size of that of the US. By 2050, aRI predicts it could be almost 10 percent larger at $25 trillion. India’s consumer market is also set to grow fourfold over the next 30 years - overall, Emerging Asia is predicted to more than double its consumption - by comparison, Euro area consumption is only expected to grow 18 percent over the same period.

As consumption grows in Asia, spending patterns will increasingly resemble those seen in middle and high-income economies, with more devoted to discretionary spending. A growing ‘silver economy’ of older consumers will amplify this trend, further boosting spending on healthcare and entertainment.

Demand Will Drive Economic Activity

Urbanization will drive infrastructure demand. With rapid economic development and growing populations, Asia needs more transport, homes, and public-service infrastructure. This demand will drive capital expenditure and economic activity. Less-developed countries, especially those in Asia, are only 40-60 percent urbanized.

As urbanization expands, it should drive construction activity and a concomitant rise in economic activity (GDP) – even in those Asian markets where demographic factors are not so supportive. aRI’s calculations suggest almost $1 out of every $2 of global investment will be spent in Asia, and that Asia will account for half of all global investment up to 2050 – potentially $390 trillion (2015 dollar terms).