Ageing ASEAN economies to face various future challenges

28 September 2018 6 min. read

Although the region has seen broad and sustained economic expansion in recent decades, ASEAN economies are in different stages of development. However, demographic shifts are set to create a host of uncertainties in the coming decades, with some regions seeing large swathes of the working age population reach retirement age. Low income economies face various burdens, with risks from out of pocket healthcare expenses, among others, impacting their ability to support retirees.

The ASEAN economies have seen strong growth in recent years. However, while growth is set to continue, the region’s relative diversity, in everything from demographics to trade dependence, means that there is uncertainty around future outcomes – even in light of strong regional growth in the recent period, with many emerging economies in the region considered to among world’s best performers in recent decades.

New analysis from PwC explores key changes in the region for different groups of economies, ranked in terms of their relative income level and age demographics. The report, titled ‘The Future of ASEAN Time to Act’, is broad, covering a range of topics, from historic changes to future projections.

Major trends governing ageing high-income ASEAN markets

For the ageing high-income countries in the region, Singapore and Brunei, the study shows that the countries lack a strong window of opportunity for the maximisation of their growth potential. This reflects their respective ageing populations, with those aged 65+ representing 25% of the population in Singapore by 2045, while in Brunei, this will be reached by 2040. Relatively high GDP mean that the care of the ageing population can be relatively well supported.

The effect of the ageing population is set to be a reduction in population by 2021-22 in Singapore, with a negative drag on GDP growth in the economy – at a projected 2% for the coming years. Concerns around productivity are also present, with Singapore hitting close to 0% growth in 2015-16. The region’s high dependence on trade is noted as a risk in the near term due to current market uncertainties.Major trends governing ageing mid-income ASEAN markets

Ageing mid income

Ageing mid income level economies face a number of risk factors. Thailand and Malaysia are set to see their aged population increase steadily, with around 50% of Thai people expected to be 65+ by 2065, while in Malaysia this bracket will rise to around 24%. The region has relatively low labour productivity, with Thailand lagging significantly behind. For the longer-term, the report suggests that a shift to more productive work will be required to compete on the global stage, particularly as wage remuneration in the region grows. Trade, too, represents a key part of the local economy, with current uncertainties also likely to affect the region in the near-term.

Managing Partner with PwC Malaysia, Sridharan Nair, said; “Malaysia has always been a trade and investment friendly country known for its ease of doing business. It looks to be on a steady growth path over the next 20 years - although we can expect some short-term ups and downs as a matured emerging economy. The introduction of sustainable economic reforms, a focus on technology and education, and efforts to address the wage gap will help support Malaysia’s positive growth.”Major trends governing ageing low-income ASEAN markets

Ageing low-income

The low-income ageing population face considerable burdens from changes in demographics over the coming decades. Vietnam will see the number of its aged citizens tick up to 30% by 2050, slightly above the world average but well below some of the other economies in the region. There is expected to be relatively strong GDP growth over the coming period, at above 6% until 2022. However, the longer-term prospects – given the relatively low GDP per capita – are more uncertain, stemming from a number of factors, from healthcare to care of the elderly.

Recently, a report from Asian strategy and management firm Solidiance outlined the coming $320 billion healthcare black-hole facing the six largest economies of ASEAN, including Vietnam. The country also has a relatively high debt to GDP ratio, limiting room for error, while changes to global trade patterns are set to affect the future prosperity of the country, which remains highly dependent on extra-Asian trade flows.Major trends governing younger mid-income ASEAN markets

Growing working aged populations

Some countries are expected to see their working aged populations increase over the coming decades. The Philippines and Indonesia in particular will see the addition of 36 million and 40 million or so people respectively – creating considerable opportunity for additional GDP growth. However, there are a number of headwinds, including relatively low infrastructure scores for logistics relative to Singapore, as well as low investment levels in infrastructure.

Aside from the strong short-term GDP figures, these countries also have relatively low levels of debt. Future growth is dependent on creating strong jobs rather than just more jobs, although both will be required to take advantage of the young population boom.Major trends governing younger low-income ASEAN markets

Younger low-income

The younger low-income group will meanwhile face a host of challenges to leverage a growing population in the face of gaps in infrastructure. The economies remain fast growing however, with average growth forecast above 7% in both Lao and Myanmar to 2022, while in Cambodia growth will be at around 6% for the same period.

These countries also need to see strong growth in their human capital capacity to stay competitive, with current trends considerably below that of more developed economies, particularly in the ‘know how’ segment. Reforms have seen strong FDI inflows into the region, although recent events in Myanmar risk alienating not merely investors, but the international community from further engagement with the country.

Country Managing Director for PwC Myanmar, Chao Choon Ong, commented on the economic story in country; “Myanmar has emerged as one of the fastest growing economies in ASEAN, recording a steep rise in FDI in recent years. A young and expanding workforce will continue to push the economy, but additional reforms are required to sustain investments and create new jobs, whilst skill development is key to improving long-term productivity.”