## Asia’s New Growth Challenge

## Source details

**Canonical URL:** [Asia’s New Growth Challenge](https://www.imf.org/en/publications/fandd/issues/2026/09/asias-new-growth-challenge-krishna-srinivasan)

## Other formats

- [Markdown version](/en/publications/fandd/issues/2026/09/asias-new-growth-challenge-krishna-srinivasan/index.md)
- [Structured JSON version](/en/publications/fandd/issues/2026/09/asias-new-growth-challenge-krishna-srinivasan/index.json)
- [Bundle manifest](/en/publications/fandd/issues/2026/09/asias-new-growth-challenge-krishna-srinivasan/bundle-manifest.json)

## Bibliographic details
- Authors: KRISHNA SRINIVASAN
- Published: September 2, 2026

---

### Key dynamics and outlook
- Asia accounts for nearly 40 percent of output and two-thirds of growth—up from a quarter in the 1990s.
- Asia now accounts for roughly a third of global trade and is increasingly a hub for innovation, services, and finance.
- A shrinking population is expected to subtract about 0.3 percentage point from growth annually by 2050.
- Productivity gains from AI and related technologies could add 0.2 to 1 percentage point to growth.
- Additional gains from trade integration could lift growth further by about 0.1 to 0.3 percentage point.
- Together, these forces suggest growth in Asia could remain close to or even exceed recent historical averages if productivity gains are fully realized.

### Productivity, investment, and finance
- Finding: Productivity growth has slowed across much of Asia since the global financial crisis.
- Finding: Investment remains high, but returns to capital have declined due to rising misallocation and diminishing efficiency.
- Finding: Credit is abundant, but financial systems remain heavily bank-centric, favoring large incumbents (including state-owned enterprises) over younger, faster-growing, more innovative firms.
- Policy priorities:
  - Shift from more to better investment.
  - Strengthen financial systems so capital flows to its most productive uses.
  - Improve financial access, deepen capital markets, and expand venture finance.
  - Price and allocate capital on market terms to boost innovation.

### Demographics and labor supply
- Finding: Since the 1960s, fertility rates across Asia fell from about 6 children per woman to about 1.6 today; life expectancy rose from roughly 50 years to the mid-70s.
- Finding: By 2050, one in five people in Asia will be 65 or older—double today’s share.
- Regional divergence:
  - Rapidly aging: Japan, Korea, China (shrinking workforces weighing on growth).
  - Middle: India, Malaysia, Vietnam (demographic dividends fading).
  - Younger: Nepal, the Philippines (labor forces still expanding).
- Policy recommendations:
  - Raise labor participation among women and older people.
  - Invest in skills and facilitate labor mobility.
  - Manage migration within and across borders.
  - Leverage AI and other technologies to offset labor shortages in aging economies.
  - Create enough high-quality jobs in younger economies to capture demographic dividends.

### Trade fragmentation and regional integration
- Finding: Geoeconomic fragmentation is reshaping trade patterns, supply chains, and investment flows and raising uncertainty for export-oriented economies.
- Finding: Less than 30 percent of final goods exports is traded within the region—about half the share in Europe and North America.
- Finding: ASEAN (a group of 11 countries that would rank as the world’s fourth-largest economy) is highly open to global trade but intraregional trade accounts for less than a quarter of total trade.
- Constraints to deeper intraregional trade: limited logistics infrastructure, uneven human capital development, and nontariff barriers.
- Policy recommendations:
  - Pursue more comprehensive, enforceable regional agreements covering services, digital trade, competition policy, and standards.
  - Build fiscal space to manage transition costs, offset revenue losses from tariff reductions, and support complementary investments.
  - Raise domestic tax revenue where low, notably in many ASEAN economies, to finance reforms and investments.
- Quantified benefit: Deeper integration could raise regional real GDP by about 1.8 percent in the long run.

### Technology, AI, and digitalization
- Finding: Asia leads in digital adoption, with about 90 percent of the population online, and accounts for more than two-thirds of global innovation in digital technologies.
- Finding: AI could raise growth by up to 1 percentage point per year relative to a no-AI baseline in economies well placed to adopt it.
- Distributional risks:
  - Early adopters with higher-skilled workers and greater capital intensity stand to gain most.
  - Later adoption in lower-income countries could widen regional disparities and raise financing costs if global investment demand increases.
  - Within countries, AI may intensify wage and opportunity gaps, benefiting high-skilled workers while displacing others.
- Policy priorities:
  - Invest in education, digital infrastructure, and innovation.
  - Implement labor policies for retraining and worker mobility.
  - Use redistributive policies to share AI gains and support displaced workers.
  - Build digital public infrastructure (identity, payment systems) and digital literacy.
- Example: India’s digital payments move trillions of dollars each year and digitalizing tax and payment systems can raise government revenues while improving public spending efficiency.

### Energy security and the transition
- Finding: Energy security has become a near-term macroeconomic challenge, notably in Southeast Asia where reliance on imported fossil fuels collides with rising energy demand.
- Country responses cited:
  - Vietnam: scaling up renewables to support manufacturing.
  - Indonesia: exploring a shift away from coal.
  - The Philippines: diversifying to depend less on imported energy.
  - Thailand: making the energy transition a policy priority.
- Trade-offs and opportunities:
  - Falling renewables costs and advances in storage ease the transition even as digitalization and AI raise electricity demand.
  - The challenge: move fast without compromising affordability or reliability.
  - Payoff: greater energy security, less exposure to external shocks, and a new engine of resilient growth.

### Policy synthesis: sustaining inclusive and resilient growth
- Core message: Policymakers must balance efficiency and resilience, innovation and inclusion, and address short-term pressures without sacrificing long-term prosperity.
- Priority actions:
  - Reorient growth toward productivity (not just capital accumulation).
  - Strengthen skills, institutions, and technology adoption.
  - Deepen regional integration in goods, services, and digital trade.
  - Expand fiscal space and raise domestic revenues to finance reforms and investments.
  - Promote targeted social and labor policies to manage distributional impacts of technology and demographic shifts.
- Strategic outcome: If productivity gains (including AI) are fully realized and complemented by deeper trade integration and supportive policies, Asia can sustain or exceed recent historical growth despite demographic headwinds.

*Source: Asia’s New Growth Challenge, Finance & Development (September 2026), Krishna Srinivasan, IMF.*

---

## Content in this bundle

- **Asia’S New Growth Challenge**
  - [Asia’S New Growth Challenge (Markdown version)](/-/media/files/publications/fandd/article/2026/09/srinivasan.pdf.md){rel="alternate" type="text/markdown"}
  - [Asia’S New Growth Challenge (PDF)](/-/media/files/publications/fandd/article/2026/09/srinivasan.pdf){rel="external" type="application/pdf"}

---

_Source: https://www.imf.org/en/publications/fandd/issues/2026/09/asias-new-growth-challenge-krishna-srinivasan_