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Most Asian economies have been relatively successful in managing the public health crisis with rapid testing, contact-tracing and appropriate mobility restrictions to contain subsequent waves of infections. Asian central banks and governments have also enabled fiscal and monetary support which are crucial to mitigating the economic fallout, thus underpinning a recovery.
Leading the way in recovery
Undoubtedly, Asia suffered a significant setback from the public health crisis. And even though the crisis still prevails, Asia’s economic outlook continues to improve, as witnessed by the recent pick-up in manufacturing purchasing managers’ indexes (PMI), the availability of vaccines, a weakening US dollar and continued fiscal support.
Global manufacturing PMI heatmap2
Tapping the power of the middle class
Asia’s middle class has continued to grow despite the economic uncertainty. The global middle class is expected to grow by another billion by 2023, of which 90% will be in Asia Pacific3.
Generally, an increase in income could drive the wealthier consumers to pursue quality lifestyles, driving some structural growth themes in the banking, wealth management and insurance sectors in the region.
In China’s life insurance sector, for example, income from gross written premiums grew about 25% annually between 2013 and 20174, underpinned by demand from its expanding middle-class population.
1. Financial deepening
Overall, Asia’s financial services industry still sees significant room for growth. In the insurance sector, for example, penetration remains low in Asia’s developing markets despite the socio-demographic shifts. Total insurance penetration, including life, pension, non-life, personal accident and health, and reinsurance, was less than 5% in India, Indonesia, China and Malaysia4 in 2017.
Most consumers in Southeast Asia also have insufficient access to many basic financial services. Of the 400 million adults in that region, only 26% of them were fully “banked” in 2018 and enjoyed full access to financial services while the remaining 74% were either “underbanked” with limited access to credit, investment and insurance or even “unbanked” with no bank account5.
To help advance opportunities associated with the deepening of digital financial services, governments in Southeast Asia could work together to foster some common standards or even align related regulations across the region6.
|FINANCIAL SERVICES USAGE
IN SOUTHEAST ASIA5
IN ASIA’S DEVELOPING MARKETS4
2. Opportunities from mobility restrictions
The adoption and usage of digital services surged during the public health crisis, and the trend will likely accelerate as users continue to multiply.
Facing varying degrees of mobility restrictions, consumers in Asia have sought solace online. Southeast Asia added 40 million new internet users in 2020, lifting the total to 400 million7. With 70% of the region’s population7 now online, the technology industry, especially eCommerce and online entertainment services, is expected to benefit from this trend towards digitalisation.
The internet sector in Southeast Asia, for example, remained resilient at about US$100 billion gross merchandise volume (GMV) 7 in 2020 despite a global economic slowdown. As consumers and small- and medium-sized enterprises become more receptive to online transactions and to digital financial services overall, the internet sector is estimated to exceed US$300 billion GMV by 20257.
At the same time, digitalisation and working-from-home are also pushing up demand for related services such as cloud computing, and commercial- and home-use software.
Asia’s rise has been swift and the region is on the road to recovery from the public health crisis on the back of coordinated support from central banks and governments. These economies will likely continue to pursue structural changes in lifestyle, consumption and financial deepening, facilitating potential opportunities for growth in Asian markets1.