NEW DELHI – A new reality is emerging in Asia. In recent decades, many of Asia’s economies have boomed. The region today accounts for about 40% of the world’s GDP – up from 25% in 1990 – and contributes about two-thirds of global economic growth.
There’s more. Asia has made unprecedented strides in reducing poverty and improving broad development indicators. The poverty rate fell from 55% in 1990 to 21% in 2010, while education and health outcomes have improved significantly. Hundreds of millions of lives have been improved in the process. And, looking ahead, Asia is expected to continue to grow at an average annual rate of 5%, leading global economic expansion.
But today, the region is facing challenging new economic conditions. With growth in advanced economies tepid, risk aversion increasing in global financial markets, and the commodity super-cycle coming to an end, the world economy is providing little impetus to Asian growth.
At the same time, China is moving toward a more sustainable growth model that implies slower expansion. Given the growing links between China and the rest of the world, particularly Asia, the spillover effects are significant. Indeed, China is now the top trading partner of most major regional economies, particularly in East Asia and ASEAN. New research by the International Monetary Fund, to be published in next month’s Regional Economic Outlook for Asia and the Pacific, suggests that the median Asian country’s economic sensitivity to China’s GDP has doubled in the last couple of decades. So China’s slowdown means a slower pace of growth across Asia.