• Growth across emerging Asian economies remains the envy of much of the world, but by its historic standards it is weak. The region will experience an extended cyclical downturn in 2023‑24. 

• The impact of recent shocks has also dimmed long-term prospects. Several emerging Asian economies are not building significant momentum in investment and exports, suggesting that they will struggle to follow the development paths of advanced Asian economies. 

• Catch-up with current advanced Asian levels of development will be out of reach for most emerging Asian countries in the next decade, but structural and business environment reforms promise some progress. 

Emerging Asia was the global economy’s success story in the pre-pandemic years. China, India, Indonesia, Malaysia, Philippines, Thailand, and Vietnam grew at an aggregate compounded annualised growth rate (CAGR) of 6.1% in 2010‑19. This compared with CAGRs of 4.3% for global emerging markets and 3.9% for emerging and developing economies. Growth among this group of Asian economies predominantly reflects trends in China, which accounts for around 60% of aggregate GDP. However, even when excluding China, the group recorded a still-impressive CAGR of 6%.

An extended cyclical downturn
Growth in emerging Asia sputtered in recent years. However, the covid‑19 pandemic, Russia’s invasion of Ukraine and rising tensions between the US and China caused growth to divert from its 2010s trend in 2020‑22, with the grouping’s CAGR falling to 3.9%. Even with the region’s real GDP forecast to grow by a world-beating 5.4% in 2023, the level of output will remain 7.4% below where it would have been if trend 2010s growth had been maintained.

EIU believes that the outlook for emerging Asia is also challenging, as the effects of recent shocks linger. According to our forecasts, growth across this set of economies will remain below its long-term trend, expanding by around 5.3% on average in 2023‑24. This is far from recessionary territory, but highlights an extended downturn in the economic cycle. China’s slowdown is a key factor, with its economy forecast to expand at an average of only 5.2% a year in 2023‑24. But even excluding China, growth among this group will fall short of historical trends. For example, Vietnam is set to expand by a lacklustre 4.8% in 2023 compared with previous trend growth of 7‑8%.

Struggling to build investment momentum
A concern beyond the next two years is a shift in the drivers of growth in the region. Historically, growth in emerging Asia has been led by investment and exports, imitating the well-trodden development paths of advanced Asian economies such as Japan and South Korea. Academic literature suggests that investment and export-led growth supports economies in their earlier stages of development, as it builds endowments in terms of human and physical capital that support long-term growth, productivity and consumption.

EIU forecasts suggest that emerging Asia is struggling to build the required momentum in investment and exports. We expect private consumption to be the main driver of economic growth in the region in the period to 2030, despite the investment opportunity presented, for example, by potential diversification in the regional supply chain. The reasons for the slow transition to more investment-led expansion are complex and can be attributed to low savings, a poor business environment and slow growth in wages, among other factors.

Among them, China’s manufacturing competitiveness is a challenge for regional peers. Labour productivity in emerging Asia remains much lower than in China. Although China’s labour productivity is still far below that of advanced Asia, it has pulled way ahead of other emerging economies in the region through gains in technology and economies of scale. Thailand, which was far more productive than China in the 1990s, now lags behind it.

Capacity in the region to manufacture higher-end products remains weak. Emerging Asian economies have been focusing more on the assembly of final goods, rather than developing the capacity to manufacture sophisticated products such as semiconductors. Vietnam and the Philippines each hold less than 3% of the global export market, while Thailand has less than 1%. India and Indonesia have not been able to capture that product market yet.

A long road ahead
Emerging Asia has a long road to navigate in terms of reaching advanced Asian levels of development. Malaysia and China are the furthest along the path, with their current growth trajectories suggesting that by 2030 they have a good chance of reaching the average 2015 level of GDP per capita in advanced Asia. Markets with a lower level of GDP per person in purchasing power parity terms, such as India and Indonesia, face a lengthier development trajectory, conditional on building on the business environment reforms and investment in skills and capabilities of recent years.

The analysis and forecasts featured in this piece can be found in EIU’s Country Analysis service. This integrated solution provides unmatched global insights covering the political and economic outlook for nearly 200 countries, enabling organisations to identify prospective opportunities and potential risks.