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Asian economies will prosper despite trade wars and recession, says McKinsey report

Analysts says Asia is rising also in terms of integrating rapidly, arguably setting the pace for a new stage of globalisation ⁠— localisation and regionalisation.

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Singapore: Asia’s economies will charge ahead in coming decades, boosting their collective share of trade and capital flows while showing less reliance on the rest of the world, according to a report by McKinsey Global Institute released Thursday.

The continent will continue to have a growing global impact across seven of eight categories — trade, capital, people, knowledge, transport, culture, resources and the environment — reviewed by McKinsey analysts for the report. By 2040 the region’s economies may be home to more than half of the world’s middle class, and account for 39% of global consumption.

The report is a nod to the long-term structural changes that should be a boon for Asia, even as the U.S.-China trade war and global recession risks weigh on the region, especially its export-oriented economies. Despite slowing growth in China that’s roiling markets, the world’s No. 2 economy is still adding the size of the Australian economy every year, the analysts wrote.

“Global discourse has recently been dominated by short-term concerns from trade tensions and the deceleration in China’s GDP growth rate,” according to the report by analysts led by McKinsey’s Singapore-based senior partner Oliver Tonby. “But Asia’s long-term prospects are robust and its increasing scale could strengthen the region’s role in the world even further in the years ahead.”

Even as global trade slows amid the tariff war, Japan-South Korea tensions and other risks, Asia is poised to remain a leader on the trade front. The region’s container shipping traffic already made up 62% of the global total in 2017, from 59% a decade earlier. The continent’s share of goods and services trade also rose.

There’s a special upside to that services growth, with global cross-border services growing 60% faster than trade in goods, according to the report. In part thanks to hearty tourism flows, Asia’s services trade is the fastest in the world, with a compounded annual growth rate of 6.4% compared with 3.9% worldwide.

The McKinsey report also tracks a shift in trade and other categories toward a more regional approach. Some 60% of Asia’s goods trade is intra-regional, and that figure is 59% for foreign direct investment, 74% for Asian air travelers, and 71% for Asian investment in startup businesses.

“Not only is Asia rising in terms of scale, but it is also integrating rapidly, arguably setting the pace for a new stage of globalization: localization and regionalization,” the analysts wrote. Asia’s automobile, computer and electronics sectors are moving the quickest to keep production close to demand, the report showed.

Aside from trade and capital, Asia also should see a boost to flows of people, knowledge, transportation, culture and resources, the analysts judged. The one outlier category was the environment: Inflows of global waste were 70% of the global total in 2017, down slightly from 71% in 2017 and reflecting countries’ efforts to limit these imports due to environmental and health concerns, and because their own domestic waste is slated to increase. –Bloomberg

Also read: Why Singapore is set to become a global data centre hub


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