TOKYO -- The International Monetary Fund forecasts that the global economy will grow by 3.9% this year, up from 3.7% the previous year, thanks to booming Asian economies. Countries and regions in Asia now make up more than half the increase in worldwide gross domestic product.
Increased consumption associated with growing populations and higher income, as well as lower barriers between regional markets thanks to multi-layered free trade agreements, have pushed up demand in Asia. As a result, Asian companies are beginning to earn more profits within the region than from exporting to developed countries.
Asia has witnessed economic developments in different countries and at different times. Japan became the first country in Asia to achieve a high level of economic development in the 1960s, and newly industrializing economies, namely South Korea, Singapore and Hong Kong, followed in the 1970s. ASEAN countries, such as Malaysia and Thailand, grew rapidly in the 1980s, as did China and India in the 1990s and beyond. Asia has achieved the so-called "flying-geese" pattern of unique economic development through an unprecedented division of labor.
That said, the economies of China and Thailand -- often called "Asia's factory" -- and resource-rich Indonesia and Malaysia have been swayed by fluctuations in demand in Japan, the U.S. and Europe, where most raw materials and finished products find their final consumers.
But the circumstances have changed over the years. According to the Japan External Trade Organization, over 40% of exports from ASEAN economies went either to other parts in the bloc or to East Asia other than Japan in 2016. East Asia and the ASEAN region together accounted for about 20% of China's total exports as well, exceeding exports to Japan, the U.S. or Europe.
The growth in regional demand in all of Asia has helped moderate fluctuations in individual economies in the region. And supporting the strong regional demand is the growing purchasing power of consumers there.
The per-capita GDP of Thailand, for example, stood at $6,590 in 2017, less than 20% of Japan's. On the other hand, on a purchasing power parity basis, the figure for Thailand equaled over 40% of Japan's. In greater Bangkok, home to a third of the country's population, the rate jumps to over 80% of Japan's.
According to 2017 trade statistics released by Japan's Ministry of Economy, Trade and Industry, middle-class and wealthy consumers in Asia are expected to total 2.9 billion by 2020, up 50% from 2010.
Furthermore, a majority of economies in the region will see a peak of their so-called "population bonus," in which the proportion of working-age population rises as the birth rate falls. This reduces a country's burden of supporting very young and elderly people, which helps accelerate economic growth. While China, South Korea and Thailand will see the end of this bonus before 2020, other Asian economies are expected to keep benefiting from the status until sometime in 2025-2045.
Efforts are being made to tap into the growing working-age populations.
The launch of the ASEAN Economic Community at the end of 2015 eliminated most tariffs within ASEAN. The group also concluded free trade agreements with China, South Korea and India and is conducting negotiations on the Regional Comprehensive Economic Partnership, a proposed trade pact that would bind these agreements together. If it is concluded, it will create a massive economic zone accounting for half the world's population and 30% of global GDP and trade value.
Asia's leading companies are moving to take advantage of Asian regional demand at a time when the region's borders are becoming increasingly porous.
For example, Malaysia's budget airline AirAsia offers flights all over Asia. CEO Tony Fernandes said the carrier aims to become a "multi-Asian company."
Thai materials giant Siam Cement Group is stepping up investments in cement, petrochemicals and paper production in neighboring countries, with an eye on AEC demand.
The company now holds more than 20% of its net assets in ASEAN countries outside Thailand.
Unfortunately, rising protectionism, as seen in the trade friction between the U.S. and China, is casting a dark shadow over the Asian economy.
Therefore, promotion of free trade by Asian countries -- the growth engines of the global economy -- is the most important factor for businesses in the region.