You might not have realised it yet… but we’re already well into the “Pacific Century”.
We’ve spoken a lot about the slow but inexorable shift from west to east.
In short, developed markets like the U.S. and Europe are losing their place at the top. And Asia is picking up the slack. It’s happening in politics, globalisation and economics. (We’ve written about this shift here.)
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This shift will be a major trend in the coming decades… and it’s already under way…
The real growth is in Asia
For decades, the U.S. has been a big driver of GDP growth. But today, the lion’s share of global GDP is coming from emerging Asia.
According to investment firm KKR, China will make up 34 percent of total global GDP from 2010 to 2020 – up from just 20 percent from 1992 to 2000. Asia as a whole is expected to make up 62 percent of total global GDP during this period – up from 43 percent between 1992 and 2000. Meanwhile, the U.S. share of total global GDP will fall from 25 percent from 1992 to 2000 to just 9 percent from 2010 to 2020.
What’s driving this growth?
There are two main drivers of economic growth: Population growth, and productivity growth. (Broadly speaking, economic growth is a function of the number of workers in an economy, and their productivity – or the economic output per person.)
Shifting demographics in part drives economic growth. So countries in southeast Asia, which boast youthful and fast-growing working-age populations that are increasingly efficient, are seeing booming economic growth.
As shown in the chart below, China, India, Vietnam and Indonesia are all seeing productivity growth that outpaces developed Western countries. The chart shows the year-on-year change in productivity growth in 2016 for a range of markets.
China, India and Vietnam experienced productivity growth of more than 5 percent in 2016. Meanwhile, productivity in the U.S., UK, and Germany rose less than 2 percent.
The chart below shows the projected GDP per capita growth for a range of global economies from 2017 to 2022. The black dots show the expected change in GDP per capita from 2017 to 2022.
As shown, a number of markets in Asia are expected to see total economic growth of 30 percent of more during this period – while developed markets like the U.S. and Australia will see less than 20 percent growth.
This growth means millions of people will be joining the burgeoning middle class…
We’ve talked a lot about how China is seeing a massive middle-class boom. Back in 2000, just 4 percent of China’s urban population was considered middle class. By 2022, that figure will be a huge 76 percent.
In short, there are expected to be 550 million middle-class people in China. That would make China’s middle class alone big enough to be the third-most populous country in the world.
But India’s not far behind…
According to the World Economic Forum, India’s middle class could grow to be larger than China’s by 2027.
The numbers are even bigger when you look at all of Asia… according to KKR, the Asian middle class is expected to grow to 3.5 billion by 2030… versus 1.4 billion in 2015.
The Pacific Century is well underway… We’ll be focusing on the continued shift from west to east much more in the coming months.