Since the outbreak of the global pandemic in 2020, the economic growth rates of emerging Asian economies have been the envy of many countries worldwide. However, the impact of the COVID-19 pandemic has made the economic growth prospects of these emerging economies bleak, with signs indicating that the region may experience a prolonged cyclical recession between 2023 and 2024.
Some emerging Asian economies have not seen significant growth momentum in investment and exports, suggesting they may struggle to follow the development path of Asia's developed economies. Over the next decade, most of these emerging countries in Asia might not catch up to the current development levels of Asia's developed nations, but reform in structural and business environments could see some progress.
Following the 2008 U.S. subprime mortgage crisis, emerging Asian economies became a global success story in economic growth. Countries such as China, India, Indonesia, Malaysia, the Philippines, Thailand, and Vietnam had a compound annual growth rate (CAGR) of 6.1%. In contrast, the CAGR for global emerging markets was 4.3%, and for emerging and developing economies, it was 3.9%. Although China has led the development momentum of emerging Asian economies, even excluding China, the group still recorded an impressive CAGR of 6%.
In recent years, the growth pace of emerging Asian economies has gradually slowed down. Particularly, the global pandemic in 2020 and the geopolitical tensions triggered by the conflict between Russia and Ukraine have led to a reduction in the CAGR of these emerging economies to 3.9%. Even though the region's real GDP is expected to grow by a world-leading 5.4% in 2023, the output level will still be 7.4% lower than the level assumed if the growth trend since 2010 had continued.
The Economist Intelligence Unit (EIU) believes that the growth prospects of emerging Asian economies are challenging due to the ongoing impact of the pandemic and geopolitical tensions. According to EIU forecasts, the growth of these economies will be below the long-term trend, and while not reaching the degree of recession, it does highlight a continuing economic malaise. For instance, Vietnam's economic growth rate for 2023 is forecasted at 4.8%, compared to a trend growth rate of 7.8%.
Another concern for the next two years is the shift in growth dynamics within the region. Historically, the growth of emerging Asian economies has been driven by investment and exports, emulating the development path of developed Asian economies like Japan and South Korea. Data suggest that an investment and export-oriented growth model is more suitable during the early stages of economic development, as it establishes the human and material capital endowments that underpin long-term growth, productivity, and consumption.
EIU forecasts indicate that emerging Asian economies are striving to establish new growth engines to replace investment and exports. By 2030, private consumption is expected to become the main driver of economic growth in the region, such as potential diversification of regional supply chains.
The competitiveness of China's manufacturing industry challenges other countries in the region and could impede the region's transformation of growth dynamics, industrial restructuring, and upgrading. Although China's labor productivity remains below that of developed countries like Japan and South Korea, it is far ahead of other emerging Asian economies. In the 1990s, Thailand's productivity was far higher than China's, but now it has fallen behind.
Moreover, other emerging economies in the region, besides China, have weak capabilities in manufacturing high-end products. These countries focus more on the short-term benefits of final product assembly, rather than developing the capability to manufacture complex products like semiconductors. Among them, Vietnam and the Philippines account for less than 3% of the global high-end product export market, and India and Indonesia have yet to have relevant products enter this market.
