Asia - Asia's in the driving seat (Pharmaceutical Business)

Attention is turning to the Far East as its economic expansion shifts up a gear, leaving Europe, the UK and US behind. Marcus Coppens, private banker at Barclays Wealth, looks at the factors behind its past growth

You can't ignore the facts. From 1980 to 2010, the average rate of gross domestic product growth among Asian countries was 5.8% - more than double the 2% average growth rate of the developed world.

While the speed of Asia's next phase of expansion is unlikely to be this fast, several of the key economic fundamentals that have driven the past 30 years of economic growth remain in place.

Key positive indicators include:

Economic strategy focused on exports and based on each country's comparative advantages.

Educated, well-trained labour force with a strong work ethic.

Vigorous native entrepreneurial class that invests at a breakneck pace in plants, equipment and physical infrastructure. From 1992 to 2009 the gross investment rate across Asia grew from 27% to 36%.

High savings rate across Asia of 42.3% in 2009, up from 24.8% in 1982. This typically translates into high levels of investment.

These strong factors will continue to power Asia's economic expansion in the coming decade.

However, there is one major proviso - Asian policymakers must successfully manage certain structural transitions that are critical for investment and business planning.

These include technological capability increases, infrastructure developments and transparency in corporate finance reporting.

In terms of technology, the Philippines, Malaysia, Thailand and Indonesia must continue to expand their technological base.

Infrastructure in these countries must also be improved to eliminate economic bottlenecks. And across Asia, greater transparency in corporate financial reporting and management must be actively fostered to further develop Asia's domestic capital markets and attract foreign investment. Lastly, vigilant macroeconomic management is crucial to avoid pronounced boom and bust cycles and sustain growth.

Assuming these structural elements are successfully managed, we believe Asia's growth in the next two decades will be similar to that of the past 30 years, regardless of any slowdown in the developed economies.

Why? Because the region will benefit from the growing impact of two trends that are not dependent on the developed economies' health: rising intra-Asian trade and increasing domestic demand and consumption.

China has 1.3bn people (20% of the world's population), while India has 1.2bn people (18% of global population) and Indonesia 245m.

Between 1990 and 2010, China's exports to Asian countries grew at a compound annual growth rate of 17%, India's grew at 13% and Indonesia's at 9%. If intra-Asian exports and imports continue to grow in these countries the value of intra-Asian trade will double by 2015. Such an ongoing and significant increase in intra-Asian commerce will also benefit the more open economies of Singapore, Taiwan and South Korea - which have substantial exposure to electronics, pharmaceutical, oil and IT sectors - and Hong Kong (economic and financial gateway for China).

The second driver of Asia's future growth, linked to the first, is rising domestic demand and consumption, especially in China, India and Indonesia. These countries' large populations and emerging middle-class consumer force will drive the next phase of economic development.

In 2009, Chinese citizens purchased $9.4bn of luxury goods, or 28% of global demand, overtaking the US as the world's second largest consumer of luxury items.

China is expected to buy $14.6bn of luxury goods by 2015, outstripping every other country's consumption.

Assuming the key drivers of past economic growth are in place, and with burgeoning intra-Asian trade and domestic consumption, Asia's economic growth over the next 20 years is likely to resemble the astonishing expansion of the past 30 years. In our view China, India and Indonesia look to be the strongest runners in the region.

Belfast Telegraph

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