Future Directions in the Indo-Asia-Pacific

Apr 10, 2019

Since the 1980s the main focus amongst economists, bureaucrats, politicians and most experts has been the Asia-Pacific. For example, the Pacific Economic Cooperation Conference (PECC) and Asia Pacific Economic Cooperation (APEC) are important institutions that Australia and Japan helped established and supported.


Now the focus has become the Indo-Pacific. In Japan, Prime Minister Abe uses “Free and Open Indo-Pacific”. The recent US National Security Strategy adopted the term Indo-Pacific. In Australia the 2017 Foreign Policy White paper now has replaced Asia-Pacific with Indo-Pacific. These changes reflect two issues: 1) a new policy focus to counteract the hegemonic impulses of China; and 2) it reflects the arrival of India as a major economic and strategic power.


My preference is for the term Indo-Asia-Pacific to continue the inclusion of the ASEAN countries in our thinking and our expectations. Once again, though, Japan and Australia will play central roles in the way the Indo-Asia-Pacific will develop in economic and geopolitical ways.


What do I predict as the major changes in the Indo-Asia-Pacific in the medium to long term? Some countries and regions will have a bigger role relative to the current situation: India, Indonesia, Vietnam, Malaysia, Philippines, Australia and the US. The main factor for these countries is the favourable demographic profile which provides them with very strong growth prospects in the future. The predictions of the long-term decline of the US have been wrong for many decades and I expect the US to continue to be the only superpower for a long time.


Japan could potentially be bigger as the drag on the Japanese economy from the aging society is countered by increasing participation rates, rising wages, increasing levels of full time jobs, corporate profitability and the calibrated introduction of foreign labour and immigrants.


Australia will continue to become a much bigger presence in the future. Australia is currently enjoying the longest growth period of any developed country on record: 27 years. Much of this growth is driven by population growth, based on high levels of fertility and inward migration. Australia has one of the highest rates of population growth in the world, ahead of countries such as Mexico, Indonesia and India. The additional result is a very favourable demographic profile compared to other advanced economies.


Perhaps surprisingly, I predict that China will diminish its impact due to the coincidence of two severe crises: the rapid aging of the society and the unsustainable levels of debt that have reached more than 250% of GDP. These major problems will greatly challenge the central authorities for decades.


Within the framework of the Indo-Asia-Pacific, Japan and Australia will engage further with India, Indonesia and other ASEAN members. There will be further collaboration in R&D, infrastructure, security and the joint contribution to the development of the services sectors to the region’s growing middle class.


The close cooperation developed by Australia and Japan and the admirable initiative of the Australian and Japanese Prime Ministers, led to the agreement of the TPP11. It has now been ratified by 6 countries (Japan, Mexico, Singapore, New Zealand, Canada and Australia) which means it will come into force by the end of 2018. Vietnam will also ratify the agreement soon. Eventually, Malaysia, Brunei, Chile and Peru will also ratify to enjoy the benefits of the agreement.


Furthermore, there is movement towards increasing the membership to 16 next year, to include Indonesia, South Korea, Taiwan, Thailand and The Philippines. The result is the reduction in trade and investment barriers in most of the countries with the better demographic profiles, adding to their potential economic growth through higher productivity. While India is not mentioned, I believe India’s growth and outward ambitions will lead to it joining the TPP16 as well. Regional economic integration is expected to move a new level.


Author: Manuel Panagiotopoulos

Managing Director, Australian and Japanese Economic Intelligence