A wave of new consumers is expected to emerge from countries across Southeast Asia, mirroring the recent rise in wealth in China. A combination of changing demographics and income growth is set to swell the middle class and encourage more spending on cars, clothing, household gadgets, education and healthcare. This should be a key driver to economic expansion in the region.
The number of wealthy individuals in Southeast Asia is still low compared with developed economies but income levels are growing. More than 80 million people are expected to join Southeast Asia’s workforce between now and 2040, according to estimates from the United Nations. With a greater percentage of the population in a position to save, countries should be able to spend less on supporting their young and invest more on lifting productivity and spurring economic growth.
In the Philippines, real incomes are expected to increase nine-fold by 2050
There is already evidence that the region is becoming richer on a relative basis. The Association of Southeast Asian Nations (ASEAN) made up 8 per cent of Asia’s total financial wealth in 2013, up from 5 per cent in 2005. Over the next five years our economists expect the financial assets of Indonesia, Malaysia, Thailand, the Philippines and Vietnam to grow at a faster rate than China’s.
HSBC Global Research forecasts that the wages of workers in emerging economies will continue to rise as their levels of productivity are driven higher by better machinery, technology and skill levels. This income growth is expected to lift many in the region into what the World Bank defines as middle and high-income brackets over the next few decades. In the Philippines, real incomes are expected to increase nine-fold by 2050. Indonesia is expected to make it into the middle-income bracket in 2036; while Malaysia is forecast to join the high-income class in about 2032.
But challenges remain. With the working-age population growing, jobs will need to be created and money found to invest in technology to drive productivity higher. It is a diverse region and the 10 ASEAN members face different political obstacles and have varying needs and resources to invest in education, infrastructure and research and development.
Productivity gains should lead to higher incomes and a rise in consumer spending. People will be able to buy more clothes, more electronic gadgets and household appliances such as fridges and air conditioners. By 2050 the Philippines’ annual spend on restaurants recreation and personal care is expected to be at least 25 times that of today, according to HSBC Global Research.
As this region becomes richer its population is likely to live longer and spend more on health and insurance. The development of its financial system will also provide easier access to financing. People will have more money to save for their future and their retirement, creating increased demand for wealth management services.
Their savings could provide a crucial supply of capital for investment in projects such as infrastructure that will also help keep the region’s economies growing. This will become easier as financial markets develop and could help create economic growth that will increase prosperity and add to the growing number of consumers emerging from Asia.
For the past 40 years Asia has supplied the global economy; today it is ready to shape it.