Asia's middle-class growth slows, keeping the 'Asian Dream' out of reach

By Karishma Vaswani 

How quickly is Asia’s middle class growing? Not as fast as it needs to keep pace with aspirations. Policymakers need to focus on boosting livelihoods — but also on improving the quality of lives — for citizens to achieve the “Asian Dream.” Until that happens, it will be more myth than reality.  

There is no concrete definition of what such a dream with Asian characteristics means, but inspiration could come from the American Dream, a term coined by writer James Truslow Adams in 1931, when he wrote that it “is that dream of a land in which life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement.”

 

 

Asia is nowhere near those lofty ambitions yet. Fifty years ago, most of the region was wretchedly poor, agrarian and misruled. The improvements in most countries have since been breathtaking, as industrialisation, education and better governance led to higher quality of life and living standards. 

 

The last decade has been particularly strong — between 2015 and 2021, the region accounted for 57 per cent of global gross domestic product growth, and in 2021 contributed almost half of world GDP (at purchasing power parity), more than any other region. But momentum is now stagnating.

 

Indonesia, an emerging economy with more than 270 million people, is the canary in the coal mine. Recent data from the Central Bureau of Statistics showed that the number of people classified as middle class declined by close to 9.5 million in the past five years.  The pandemic was cited as mostly responsible, but Southeast Asia’s largest economy wasn’t alone. Then-President Joko Widodo reflected: “This issue exists in almost all countries.”

 

Those may be the words of a leader trying to defend his legacy, but he wasn’t entirely wrong. China is seeing an erosion in household wealth because of a collapse in real estate prices. Middle-class families are being forced to rethink their money priorities, with some pulling away from investing, or selling assets to free up liquidity. India paints a similarly worrying picture. Growth is slowing, urban salaries — particularly in the largest cities — are contracting, and spending is declining.

 

The middle class often plays an important role in political and economic development, as a 2021 report from the OECD Development Centre notes. Wealthier societies tend to push for higher democratic participation and less corruption, leading to better governance. Good policies depend on the support of public opinion, and are likely to be stronger among the large middle classes that are typical of stable democracies.  

Still, there’s evidence to suggest that most Asians are feeling confident about their prospects, despite the slowdown. A study of over 12,000 people from across 12 markets in Asia, conducted by the McCann Worldgroup, an advertising agency network, showed that two-thirds of those surveyed believed they did not have to leave Asia for a better life, indicating that they think their aspirations will eventually be met at home.

 

Shilpa Sinha, McCann’s APAC chief strategy officer, told me: “What surprised me was how tied these people feel to the idea that their futures belong in the region, with many saying that they are more hopeful about their futures in Asia rather than in places like the West.” 

 

For Asians to continue to feel that optimistic about their prospects, governments have their work cut out. Increasing the tax base in countries like Indonesia could help add much-needed revenue to education and health-care budgets, both priorities. In China, policymakers are attempting to address the malaise through bouts of stimulus, but it may be too little, too late to shift household moods toward spending. 

 

There’s a lot at stake. Oxford Economics predicts that emerging-market middle classes will double in the next decade — expanding from 354 million households in 2024 to 687 million by 2034. Even if China no longer posts the world’s fastest rate of middle-class growth, it will remain the biggest consumer market. By 2029, two in every three middle-class consumers are expected to be from Asia. The biggest increases will come from China, India, Indonesia, the Philippines and Vietnam. 

 

All of this requires effective government policies to attract increasingly discerning foreign investment, as well as to harness the potential of the existing middle class. Asia’s growth era may be showing some cracks, but the Dream still has plenty of wind behind it. The wake-up call may be in realising, as citizens in mature economies have discovered, that while reaching the middle class is one thing, it can be more challenging to stay there. 

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Disclaimer: This is a Bloomberg Opinion piece, and these are the personal opinions of the writer. They do not reflect the views of www.business-standard.com or the Business Standard newspaper