Mumbai — India is poised to overtake the UK to become the world’s fifth largest economy, with a GDP or gross domestic production about double the size of either Canada or Russia, in the coming years, according to research by the Mckinsey Global Institute (MGI).
Also, along with China, which competes as an economy with the US, the institute says, Asia is now the centre of global economic activity. “The rise of Asia is happening faster than expected. Fast-followers are already industry leaders. The rural class is already the urban middle class. Asian cities are already international financial centres,” says the research.
McKinsey & Company, in partnership with the MGI, today launched Future of Asia – new research that examines, not how quickly Asia will rise, but how Asia will lead. The MGI research examined 71 developing economies and singled out 18 of them for consistently posting robust economic GDP growth. All seven long term outperformers and five out of 11 recent outperformers are located in Asia.
“If you want to understand the global economy and its future, you need to understand Asia,” said Oliver Tonby, Chairman of McKinsey in Asia.
According to the research, the 21st-century will be characterized by a pivot toward Asia, and business and market leaders will need an accurate picture of what a future Asia will look like as they set long-term strategies.
McKinsey’s research highlights that the region is on track to top 50% of global GDP by 2040 and drive 40% of the world’s consumption. Furthermore, as consumption rises, more of what gets made in Asia is being sold locally instead of being exported to the West.
Today, 52% of Asian trade is intra-regional. “While the previous era of globalization was marked by Western companies building supply chains that stretched halfway around the world as they sought out the lowest possible labour costs, today only 18% of goods trade involves exports from low-wage countries to high-wage countries,” said Jonathan Woetzel, a Senior Partner at McKinsey and Director of MGI.
As wages have risen in China, countries like Vietnam, India and Bangladesh have managed to grow their exports of labour-intensive manufactured goods by annual rates of 15%, 8% and 7%, respectively. “While the trade intensity of goods has declined, service flows have become the real connective tissue of the global economy – and Asia’s services trade is growing 1.7 times faster than the rest of the world’s,” the research states.
Additionally, over 40% of the world’s 5,000 largest companies are Asian. According to the 2018 Fortune Global 500 ranking, 210 of the world’s 500 biggest companies by revenue were Asian. The region’s share of top-performing firms has grown from 19% to 30% in the past two decades. Most of these companies are from China, India, Japan, and Korea, and the most dominant sectors within this group are computers and electronics, automotive, and banking.
In the decade since 2005-07, the economic profit produced by top-quintile Asian firms has increased by 57% (versus 33% in North America). Meanwhile, the economic profit destroyed by bottom quintile Asian firms increased sevenfold (versus 2.5 times in North America). This effect tends to squeeze the firms in the middle of the distribution, a phenomenon though global, but particularly pronounced in Asia. Asia may be replicating some of the patterns that have taken hold in the West.
Asia which today accounts for half (2.2 billion) of the world’s internet users; China and India alone account for one-third. The region’s enormous pools of digital consumers support a flourishing and an innovative technology sector.
Besides, Asia has ample venture capital to support technology innovation and entrepreneurship. China provided 20% of the world’s venture capital between 2014-2016, with India not far behind. China now ranks second only to the United States in terms of start-up investment. As of April 2019, Asia was home to more than one-third of the world’s ‘unicorns’ (start-ups valued at more than $1 billion). Ninety-one of these companies are in China, followed by India with 13, South Korea with six, and Indonesia with four.
By 2020, Asia’s middle class will be around three billion strong and may be home to half of the world’s middle class. Southeast Asia alone, which had 80 million households in the consuming class only a few years ago, is now expected to double to 163 million households by 2030. These newly prosperous consumers will have income levels that allow them to make significant discretionary purchases. McKinsey projects that, over the next decade, the region may fuel half of the consumption growth worldwide.