Asian Development Bank President Haruhiko Kuroda said developing Asia is behind Latin America in boosting consumption and urged policy makers to take steps to reduce precautionary household savings.
"The region needs to deepen and broaden a more resilient financial system to reduce household savings and encourage consumption," Kuroda said in Hanoi Friday, where the ADB is holding its annual meetings. "Good social protection systems are also needed to ease the pressure on Asian household to save. These include pensions, insurance and unemployment subsidies."
At stake: avoiding what the ADB called this week a "middle-income trap," where Asia fails to make the leap toward developed-nation status that could bring 3 billion people on the continent to European-level incomes by mid-century. Countries from China to Malaysia have so far relied on a model of high savings to help fund investment in export industries.
"A growth model which worked well for a low-income, capital-scarce region will not work for a middle-income, capital-abundant region," Kuroda said.
Successful national and regional policies may boost Asia's gross domestic product to $148 trillion by mid-century, making up 51 percent of global output in 2050, the ADB said this week.
In an alternative scenario, where countries such as China, India, Indonesia and Vietnam see growth slow and others fail to stoke their expansions, the region would account for 32 percent, or $61 trillion, of global GDP in 2050, it said.
"Developing Asia, as a whole, still lags behind the Organization for Economic Cooperation and Development countries, and even Latin American countries in this respect," Kuroda said.
Asia can't depend on external demand to boost growth as developed economies are growing at a slower pace, Naoyuki Shinohara, deputy managing director of the International Monetary Fund, said in Hanoi today.
"This two-speed growth will continue for the time being so Asia cannot depend too much on external demand anymore to sustain domestic momentum," Shinohara said. "By strengthening domestic social growth, it would lead to more inclusive growth. Inclusive growth means we'll have more power to fight against poverty issues, more power to fight against income inequality."