The resilience of developing Asia since the global financial crisis, on top of its historic economic success, has sparked interest in understanding its future. The region is diverse, with sub-regions and countries of varying population size, geography and economic dynamism as well as different vulnerabilities. While the economic performance of many Asian countries remains robust, in 2025 there are also likely to be several middle-income countries (MICs) with persistent pockets of poverty, vulnerability to income shocks and high levels of inequality.
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https://www.odi.org/publications/11202-asia-2025-development-prospects-a...
EXECUTIVE SUMMARY
The resilience of developing Asia since the global
financial crisis, on top of its historic economic success,
has sparked interest in understanding the future. The
region is diverse, with sub-regions and countries of
varying population size, geography and economic
dynamism as well as different vulnerabilities. While the
economic performance of many Asian countries remains
robust, there are also likely to be several middle-income
countries (MICs) with persistent pockets of poverty,
vulnerability to income shocks and high inequality. This
report examines the macroeconomic outlook in Asia
and its main drivers, with a focus on the prospects of
the region’s MICs and how development partners need
to adapt and tailor their instruments, modalities and
low-income. The region stands out when it comes to the
rapid fall in the share of the population living below
the extreme poverty line and to swift improvements
in human development. However, such trends occur
amid development challenges, including pockets of
persistent poverty, income vulnerability and growing
income inequality. Some countries continue to confront
fragile situations associated with long-term and often
subnational conflict.
Identifying successful and vulnerable
countries
Third, we assess how vulnerable developing Asia-Pacific
economies are against the macroeconomic outlook and
the three ‘mega-trends’ – that is, China-centred GVCs;
the impact of BRI investments on public debt; and
persistent poverty gaps and growing income inequality.
Each country is scored on six dimensions: economic
prospects, trade capabilities, debt accumulation
associated with the BRI, social development, population
dependency and special vulnerabilities related to
national circumstances, for example fragility or adverse
geography (small island economy or landlocked
country). Our modest objective is to synthesise the data
already analysed in this study in an attempt to highlight
vulnerability in developing Asia during the middleincome
transition. We group countries in three distinct
groups: (i) highly vulnerable, (ii) vulnerable and
(iii) robust.
The three highly vulnerable economies mapped
by macroeconomic prospects/shocks, population
dependency and the three mega-trends are Afghanistan,
Lao People’s Democratic Republic (PDR) and Tajikistan.
The 18 vulnerable economies are Armenia,
Bangladesh, Bhutan, Cambodia, Georgia, Kazakhstan,
Kyrgyz Republic, India, Indonesia, Maldives, Mongolia,
Myanmar, Nepal, Pakistan, the Philippines, Sri Lanka,
Turkmenistan and Uzbekistan.
Myanmar and Kyrgyz Republic seem to be at the
higher end of the vulnerability scale and risk falling into
the highly vulnerable category.
The remainder are considered robust, and comprise
China, Hong Kong, Malaysia, Singapore, Republic of
Korea, Taiwan and Thailand.
Sensitivity analysis suggests that the country
classifications inevitably vary somewhat according to the
composition of the indices used, but that a composite
vulnerability index including all six dimensions is
useful. A reasonable correlation also exists between our
vulnerability index and the United Nations Development
Programme’s Human Development Index, as well as the
World Bank’s Doing Business rankings. Thus, mapping
different dimensions of vulnerability shows broadly
similar country-level outcomes.
Implications for development partners
Finally, what do these trends mean for development
partners? The region’s foreign aid landscape is
fundamentally shifting, within the context of an ‘age of
choice’ in terms of increasing providers of development
finance, with some regional economies (such as China
and India) shifting from being aid recipients to aid
donors, but still having limited national fiscal space
to finance development projects. Bilateral donors
increasingly consider trade and investment linkages in
addition to aid.
While being a simple tool to highlight exposure to
risks, the vulnerability index can inform development
partners on appropriate approaches in each country
context. We divide such approaches of bilateral donor
agencies in the region into three different categories:
1. In an aid-focused approach, development agencies
help restore peace, rebuild countries after conflict or
natural disasters and address the most basic human
needs as well kickstart economic development, for
example supporting highly vulnerable countries.
2. In an aid and trade approach, development agencies
phase out aid grants and move towards loans on
increasingly less concessional terms. This would
involve an increased role for trade relationships to
encourage countries to trade more, grow faster and
raise domestic resources and reduce aid dependency,
for instance focused on vulnerable economies.
3. In a trade and private investment approach, donors
(using only very limited aid resources) are engaged
in dialogue and foster mutually beneficial trade and
investment linkages in those countries classified as
‘strong/robust’.
Development partners should not move from an aid
relationship simply to no relationship at all as many
vulnerabilities loom large in many countries. Instead,
when partner countries transform, donors should be
moving towards a different relationship; one that is
based on aid and trade, and, eventually, trade and private
investment, depending on the existing vulnerabilities in
partner countries. In moving to a trade and investment
relationship, development partners will need to respond
to the specific vulnerabilities and opportunities of the
countries in question.
approaches to respond to these challenges.
Macroeconomic projections
First, this report examines what developing Asia’s
economic landscape might look like in 2025, by
reviewing recent performance and presenting
macroeconomic projections for 46 economies across five
Asian sub-regions. It also provides forecasts for Asia’s
developed economies, including Australia, Japan and
New Zealand. Projections include population, growth,
trade, per capita income and inflation. This study adopts
a shorter forecasting horizon than some other Asian
futurology studies. Economic history suggests a higher
likelihood of unforeseen events such as downturns
influencing economic outcomes the further ahead we
attempt to forecast.
By 2025, half the world’s population (4.3 billion
people) will live in developing Asia amid a demographic
transition to an ageing populating. Developing Asia will
continue to play a key role in bolstering global growth.
The regional economy grew by 6% in 2017 and is
projected to grow at a slightly slower pace annually up
until 2025. The region’s trade growth is expected to be
supportive of its gross domestic product (GDP) growth,
at least in the short term.
Fast growth in comparison with other regions
means developing Asia’s share of world GDP in current
market prices could rise from 26.2% to 30.5% between
2017 and 2025. In purchasing power parity terms, the
region’s share of world GDP could rise from 37.5% to
42.5% between 2017 and 2025. The region’s five largest
economies in 2017 – China, India, Indonesia, Republic of
Korea and Singapore – could continue to dominate the
region’s economic landscape in 2025.
Developing Asia’s income per head in current market
prices could increase from $10,476 to $15,428 between
2017 and 2025. Remarkably, this would put developing
Asia within the World Bank’s current definition of a
high-income economy. However, glaring disparities in
income per head are visible between the sub-regions and
economies over the forecast period. East Asia remains the
richest sub-region and South Asia the poorest. Several
lingering risks – such as rising trade protectionism,
monetary tightening and geopolitical tensions – could
affect these projections. But it is difficult to predict the
timing and impact of these risks.
The prospects and challenges of three
‘mega-trends’ for Asia’s economies
Second, this report analyses three ‘mega-trends’, risks
and opportunities that are likely to influence the course
of the region’s economic development up to 2025, and
specifically recently graduated MICs: (i) the performance
of China-centred global value chains (GVCs), (ii) the
likely impact of the Belt and Road Initiative (BRI)
and (iii) the persistence of pockets of poverty and
vulnerability amid prosperity. Dealing with these
issues will help improve the economic prospects for
developing Asia.
China-centred GVCs are slowing, with threats and
opportunities for industrial latecomers in Southeast Asia
and South Asia. These opportunities could stem from
(i) multinational corporations exploring alternative
regional locations for labour-intensive segments of GVC
manufacturing, (ii) China’s deepening industrialisation
and the growing local roots of its GVCs and (iii) GVCrelated
services as a new form of trade. To realise these
GVC opportunities, latecomers need to improve their
business environments and firms should adjust their
business strategies. Ensuring competitive wages with
high labour productivity, openness to foreign direct
investment and streamlined procedures and reliable
infrastructure are essential policy reforms.
The ambitious BRI offers both opportunities and
risks for China and the rest of developing Asia. It has
the potential to deepen economic and political ties and
spread prosperity to a greater range of countries than
before. But multiple risks resulting from the BRI – such
as those related to debt sustainability, environment and
governance standards, financial stability and political
relations – will require careful management at global and
regional levels.
Most developing Asian economies are now classified
as middle-income (or high-income) countries. In
2025, Afghanistan and Nepal are expected to be the
only two possible exceptions, still to be classified as
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