Asia is facing a triple policy challenge that could see even the region's 
fastest-growing economies fall into the 'middle-income trap', according to new 
research by Asia House.

The report highlights Asia's position at a crossroads, with countries' 
trajectories towards becoming advanced economies at risk of being derailed by 
economic scarring from the COVID-19 crisis, the disruptive impact of climate 
change, and a slow pace of digitalisation.

Without urgent and robust policy action to address these challenges, Asia's 
economies face being caught in a middle-income trap that hampers development 
and puts the region's long-term growth at risk, the report finds.  

'A shift is needed towards policies that specifically address both the 
immediate economic scarring of the pandemic and secure longer-term resilience 
and prosperity,' the report recommends. 

'For the 21st century to become the Asian Century, with Asia's economies set to 
take a share of over half of global GDP by 2050, only a determined effort by 
the authorities to fill an evident policy gap will enable growth to continue at 
the required levels. Adopting a trio of priorities now will enable a robust 
economic tomorrow: green finance, digitalisation and enhanced regional 
cooperation.'

The London-based think tank assessed eight key economies in Asia across metrics 
conducive to meeting these challenges. In two new indices published today, Asia 
House analyses the performance of China, India, Indonesia, Japan, Malaysia, the 
Philippines, Thailand, and Vietnam in the critical areas of green finance and 
digitalisation readiness – areas that will unlock future productivity and 
enable sustainable growth.

China leads the Asia House Economic Readiness Indices, but will see economic 
growth slow in 2022 due to the ongoing disruption of COVID-19. While India is 
expected to be the world's fastest-growing economy this year, its ranks lowest 
for digital readiness out of the eight economies assessed. Closing its digital 
divide will be essential for its long-term growth. 

Japan ranks second across both indices, and is likely to experience a moderate 
acceleration in growth in 2022, but authorities must speed up digitalisation 
efforts, the report finds. Within Southeast Asia, Malaysia and Indonesia lead 
in green finance readiness and digital transformation respectively.

View the Asia House Economic Readiness Indices in the Executive Summary here [ 
https://asiahouse.org/wp-content/uploads/2022/01/Asia-House-Report-Exec-Summary.pdf 
]. The indices form part of the inaugural Asia House Annual Outlook, published 
by the think tank to track key economic trends across Asia and provide a 
forecast for the region's growth. 

Comment

Phyllis Papadavid, Head of Research and Advisory, Asia House: 

"Our research underlines the critical importance of green finance, broader 
digitalisation, and greater regional coordination for Asian economies if they 
are to avoid being caught in a middle-income trap that holds them back from 
greater development. 

"If Asian economies can respond effectively to this triple policy challenge, 
then sustainable, equitable and productivity-driven growth will likely follow, 
along with brighter prospects for the 'Asian Century'.

"For this to happen, we need to see unprecedented investment for energy 
transitions, including fast-tracking green finance, and more diversified 
digitalisation in Asia. More comprehensive policy cooperation by regional 
economies will be critical to achieve these shared objectives."

Michael Lawrence, Chief Executive of Asia House: 

"The Asia House Economic Readiness Indices shed new light on the progress of 
Asia's economies at a critical time in their development. Alongside the Asia 
House Annual Outlook report, we hope they will serve as valuable insights into 
the region's transition, and will aid policymakers in identifying areas where 
action is needed. 

"Asia is estimated to account for half of global GDP by 2050, but as our 
research shows, this is not guaranteed. Asia House will be publishing the 
indices annually to track this trend and add to global understanding of this 
key region for the world economy." 

Policy recommendations 

Drawing on the indices, the Asia House Annual Outlook report includes several 
recommendations for policymakers across Asia. 

    -- Economic policymakers should elevate the use of institutionally 
       mobilised finance, including blended finance, to de-risk and catalyse 
       investment flows.

    -- Private and public sector coordination to promote and incentivise green 
       finance should be prioritised to combat the climate crisis. 

    -- Asia's central banks should include sustainability objectives into their 
       monetary policy mandates and explicitly incorporate climate risks into 
       their assessments.

    -- The promotion of Industry 4.0 – the integration of automation, 
       artificial intelligence, cloud computing etc in manufacturing - coupled 
       with digital re-skilling and knowledge diffusion is needed to secure the
       Asian Century and avoid the middle-income trap.

    -- Currency reserves should be pooled and their management coordinated, 
       while the foundation for a common digital currency in Asia will ensure 
       the region is well prepared to sustain growth.


Access the full Asia House Annual Outlook report here [ 
https://asiahouse.org/wp-content/uploads/2022/01/Asia-House-Annual-Outlook-2022.pdf 
]



SOURCE: Asia House