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Asia-Pacific cities in Tomorrow's World: A hotbed of megatrend opportunities

Asia-Pacific cities in Tomorrow

Harry Tan, Head of Research, Asia-Pacific, discusses megatrends that are present in the Asia-Pacific region, such as the rise of the middle class, wealth and consumption.

More resilient underlying fundamentals after the Asian Financial Crisis in 1997 will complement the region’s longer-term secular trends to underpin economic growth prospects and real estate investment performance over the next decade or so. Among economic blocs, Asia-Pacific continues to dominate and drive the global economy and provides the most attractive access to growth within the broader global property investment portfolio.

Fig.1: Asia-Pacific outpaces world growth...

 
Source: Oxford Economics, 2017 

Over the last decade, regional growth (in real, purchasing power parity (PPP) terms) is almost double the world average rate (6.1% versus 3.4% respectively). While the growth gap is expected to halve in the coming decade, due mainly to the managed slowdown in China, the region is still expected to outperform (Fig.1 and Fig.2). Consequently the size of the region’s economy, having grown by 66% over the past decade, is expected to expand by a further 52% over the next 10 years.

Fig.2: ...and dominates the global economy

 

Source: Oxford Economics, 2017 

By contrast, the world economy expanded by 32% from 2007-2016, and is expected to grow by a further 35% over the next 10 years. From just 32% in 2007, Asia-Pacific will account for nearly half of world output by 2026 (Fig.3). This irreversible shift in economic influence from West to East also belies another megatrend shadowing the region; the rise of the middle class, wealth and consumption, much of which is led by the rise of China and in time, India.

Fig.3: Faster growth, bigger role

  2007-2016 2017-2026

(%)

Per annum

Total

Per annum

Total

World

3.4

31.9

3.4

34.9

Asia-Pacific

6.1

65.6

4.8

51.5

US

1.3 12.0

1.8

16.4

Europe

1.2 8.8 1.7

16.0

Source: Oxford Economics, 2017

The revival of domestic demand conditions across the region after the prolonged downturn from 1997-2003, had in most instances, helped to mitigate the headwinds from the Global Financial Crisis (GFC) in 2008. Undoubtedly, the coordinated global monetary easing and the massive injection of stimulus by China has helped support sentiment, however most regional economies did indeed enter the GFC in much better economic and financial health; robust household and corporate savings, healthy business and labour market conditions, and stronger fiscal and external balances. Consequently, the V-shape economic impact of the GFC in many Asia-Pacific economies was sharp but relatively short-lived. The rise of the middle class, particularly in China was key, not only in mitigating global cyclical risks but more importantly, strengthening regional trade, tourism and investments.

Fig.4: Sharp increase in net household wealth

 

Source: Oxford Economics, 2017 

By most measures, Asia-Pacific is now the wealthiest regional economic bloc in the world and Chinese consumers are already the biggest buyers of luxury products. Over the past decade alone, net household wealth across the region almost doubled (up 86% to US$47tn in 2016 from US$16tn in 2007). Much of the increase can be attributed to rising asset prices (stock and real estate) due to loose financial conditions, however, the continuing rise of the middle class in China is also expected to continue driving the level of net wealth across the region in the coming 10 years, by 121% to US$132trn (Fig.4). That being said, Asia-Pacific is expected to account for nearly half of global consumption by 2026. The impact of a deepening and broadening consumer class alongside the rapid adoption of technology across the region, will not go unnoticed on the retail and logistics sectors (Fig.5).

Fig.5: Asia-Pacific - consumer powerhouse

 

Source: Oxford Economics, 2017

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