Welcome to Singapore. In our last Economic Commentary, I focused on Canada’s trade diversification imperative, and why a softening domestic economy and our declining international market share underscore the importance of expanding to new international markets. In developing Asia, for example, potential growth is more than 5%, with the fastest-growing economies capable of sustaining growth in the 6% and 7% range.
Where does this growth come from? A huge population for one—with Asia-Pacific being home to more than half of the world’s inhabitants. This year, India is set surpass China as the world’s most populous country, and South Asia will continue growing for decades. But population growth in and of itself isn’t a guarantee of economic success. It doesn’t guarantee that these billions will live and eat well, buy more homes, or drive fancier cars.
Rising income is responsible for that. And in this regard, changes to the age structure of many Asian countries are telling. Because, while the median age in China is rapidly approaching that of some of our older, less dynamic developed economies, aging populations here in Southeast Asia will see more young people entering the workforce. With fewer children and elderly people to look after, dependency ratios will continue to plummet, putting these economies in a demographic sweet spot.
With more people being able to earn money, and keep it, the region is experiencing higher levels of wealth accumulation. In 1980, the average Singaporean earned 25% less than their Canadian counterpart, when adjusting for the cost of living. Today, that Singaporean earns more than double their Canadian counterpart and, by 2027, that’ll balloon to almost two-and-a-half times. Beyond Singapore, many countries in the region have seen income growth of 6% and 7% a year for the last 30 years. This means that since the early 1990s, income levels in many Asian economies have surged by five to eight times.
While today, we point to the U.S. consumer as the driver of global growth, the middle class in Asia is already bigger than it was before the pandemic. This will only continue, with the middle class in India, Pakistan, and Bangladesh rising sharply. In fact, by 2030, South Asia will add 40% of the world’s new middle-class consumers, with one billion new entrants and, together with China, will be home to more than half of the world’s purchasing power.
Since the middle class tend to be disproportionately urban, better educated and have smaller families, this will influence how their money is being spent. Having less children will allow parents to afford quality education. They’ll invest more in health care and nutrition, higher protein diets, with particular volume coming out of countries, like Indonesia. More women will also join the workforce, giving families a chance for more personal consumption and creating demand for consumer durables. And what’s notable here is the sheer number of people in this part of the world who’ll make these purchases for the first time, implying growth rates far more exciting than what we see among our traditional trade partners.
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Having one of the world’s highest food self-sufficiency ratios, this dynamic presents opportunities for Canadian companies all along the agri-food value chain—from producers of fertilizers and agricultural commodities to providers of expertise and ag-tech, suppliers of prepared food products and even those in food retailing and distribution.
What about cars? We know a thing or two about making cars in Canada. Beyond China, which is now the world’s largest auto market, there are strong long-term growth prospects for countries, like Indonesia, the Philippines and Vietnam, as rising disposable income and urbanization create demand for car ownership. When viewed through the lens of technological innovation, shifting consumer preferences and regulatory trends, we’re also seeing a move toward electric vehicle (EV) technologies, and the strengthening of local EV supply chains in countries such as India.
Rapid urbanization will require roads, railways, ports and airports to expand commerce. People will need housing, improved water supplies and sanitation, education and health-care facilities to increase productivity. They’ll need mass transit systems and better solid waste management to improve living standards. Here, too, there’ll be strong demand for clean and renewable technologies, and opportunities in digital infrastructure as well.
The bottom line?
While it’s easy to be distracted by the day-to-day gyrations of the market, and the flurry of news around the global economy, we need to keep our eyes on the immutable structural trends that will shape the world that Canadian companies will be competing in over the long term. In setting a truly transformative strategy, looking in the rearview will tell us nothing. We need to think more about what trends around demographics, wealth accumulation, urbanization, technological disruption, and the availability of land, labour and capital tell us about where we need to be playing and how we can set up Canada to be competitive, as if our future depends on it. Because it does.
This week, special thanks to Lili Mei and Nadeem Rizwan in our Economic and Political Intelligence Centre.
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