Asian Economic Engine

The Economist writes:

The real driver of the world economy has been Asia, which has accounted for over half of the world’s growth since 2001. Even in current dollar terms, rather than PPP, Asia’s 21% contribution to the increase in world GDP exceeded America’s 19%. But current dollar figures understate Asia’s weight in the world, because in China and other poor countries things like housing and domestic services are much cheaper than in rich countries, so a dollar of spending buys a lot more. If you want to compare consumer spending across countries, it therefore makes more sense to convert local currency spending into dollars using PPPs rather than market exchange rates.

Across many other Asian countries, the notion of the frugal Asian consumer is equally flawed, says Mr Anderson. Although consumption has fallen as a share of GDP in most Asian countries, this does not mean that households are saving more. Excluding China and India, household saving has fallen sharply, from 15% of GDP in the late 1980s to 8% today. The paradox is explained by the fact that wage incomes have risen more slowly than GDP as production has become more capital intensive. But this means that Asian consumers are spending a rising share of their income by borrowing or running down their savings. Amazingly, the savings rate of Japanese households has fallen more sharply than that of American households over the past decade.

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Rajesh Jain

An Entrepreneur based in Mumbai, India.