BrazilAsia to account for half of all global GDP in under a generation
A new report from McKinsey highlights the rapid rise of Asia and its economic ascendancy ahead.
By the time the 40 million or so babies born in Asia this year reach maturity, they’ll be entering a regional workforce which will account for more than half of the world’s GDP. That’s according to projections from global management consulting firm McKinsey & Company, which in a new report tracks Asia’s rapid economic rise over the past thirty years on its trajectory toward contributing 50 percent of total global GDP by just 2040.
While Asia’s rise has not been unexpected, the pace of its ascent has been faster than most would have imagined. Less than 20 years ago Asia contributed less than one-third of global GDP. An earlier McKinsey report identified eighteen of the world’s ‘outperforming’ developing economies, with annual per capita GDP growth of above 3.5 percent over the past 50 years or above 5 percent over the past 20. Sixteen of those countries were in Asia.
The question according to McKinsey then is no longer how quickly Asia will rise, but how it will lead? “One of the most dramatic developments of the past thirty years has been emerging Asia’s soaring consumption and its integration into global flows of trade, capital, talent, and innovation,” the authors state. “In the decades ahead, Asia’s economies will go from participating in these flows to determining their shape and direction.”
The report, compiled by the McKinsey Global Institute, serves as an overview of Asia’s role in a number of areas, including trade flows and networks and the Asian consumer – the latter of which is further projected to account for 40 percent of the world’s consumption in just over two decades, upending the previous status quo as to the former. Major structural shifts in the world’s trade patterns are already underway, with Asia at the root of many.
Having examined 23 industry value chains spanning 43 countries, McKinsey notes that while global output has continued to rise over the past decade, the share of goods traded across borders has dropped by 5.6 percentage points during that time – not due to trade disputes or an impending slowdown, but as a reflection of healthy economic development in China and the rest of emerging Asia, with more locally-made goods sold in wealthier home markets.
Figures-wise, over the decade to 2017, China just about tripled its production of labor-intensive goods from $3.1 trillion to $8.8 trillion, yet the percentage of its exports as a share of gross output dropped from 15.5 percent to only 8.3 percent. The trend-lines in India tell a similar story, while more broadly over half of the goods’ trade in Asia is now interregional, with regional supply chains becoming shorter, more localised and self-contained as a result.
This evolution is of course driven by the increase in local demand. While such startling regional figures are frequently put forward, they do bear repeating; some 1.2 billion people have been lifted out of poverty in the past twenty years, or, as McKinsey puts it, “propelled into the consuming class”, such that they can begin to make significant discretionary purchases. The majority of those live in Asia. Soon, the Asian middle class will be three billion strong.
“Consumer markets across the region are experiencing not only tremendous growth but also dynamic change as new consumers quickly move past basic purchases and hit the point at which they can purchase some personal indulgences and express their own fashion and style,” conclude the analysts from McKinsey. “As companies strive to meet ever-high expectations, Asian consumers will increasingly set trends for the rest of the world.”
