Asia’s next economic crisis may come from youth unemployment

Prof. Syed Munir Khasru

NIKKEI Asia
April 3, 2026

https://asia.nikkei.com/opinion/asia-s-next-economic-crisis-may-come-from-youth-unemployment

For years, policymakers across Asia have focused on sovereign debt as the region’s most visible economic risk. But the next crisis may not begin with government balance sheets but with a generation of young people unable to find work.

Even as governments across the region continue to monitor debt sustainability and fiscal pressures, a different structural risk is building beneath the surface. If balance is the crack economists watch in the financial system, youth unemployment may be the stress accumulating in its foundations.

That stress is now intersecting with a new layer of economic pressure. The ongoing Iran war is pushing global energy prices higher, feeding inflation and tightening financial conditions across Asia. Brent crude has risen to around $115 per barrel in recent weeks, compared with around $60 at the beginning of the year, raising import costs for energy-dependent economies. A sustained $10 increase in oil prices can add roughly 0.4 percentage point to inflation in advanced economies, with potentially larger effects in emerging Asia.

Meanwhile, bond yields across major economies are rising as markets price in persistent inflation and tighter monetary policy. The 10-year U.S. Treasury yield has climbed to around 4.4%, while Japan’s 10-year government bond yield is around a multidecade peak. Equity markets across Asia are plummeting.

Against this backdrop, Asia’s demographic reality becomes consequential. The region remains far younger than most advanced economies, with South and Southeast Asia home to hundreds of millions of people under 30 years old. Yet job creation has not kept pace with this demographic momentum. According to the International Labour Organization (ILO), global youth aged 15-24 face unemployment rates around 12.6% to 13%, or roughly 65 million people, with young workers nearly three times more likely to be unemployed than adults.

The region’s economic rise has long been powered by this demographic advantage, but dividends are not automatic. Educational attainment is rising rapidly, yet employment opportunities are not keeping pace. China produces more than 11 million university graduates annually, even as youth unemployment exceeded 20% in 2023. Across countries such as India and Indonesia, the supply of educated workers is rising faster than the availability of suitable jobs.

South Asia faces particularly intense demographic pressures. In India, young people account for nearly 83% of the unemployed. Bangladesh adds roughly 2 million unemployed young workers annually to its labor force, while in Pakistan, where nearly 65% of the population is under 30, the economy struggles to generate sufficient formal employment. Much of the available work remains concentrated in low-productivity informal sectors, limiting income growth and economic mobility.

These domestic pressures are compounded by external vulnerabilities. Gulf economies host an estimated 20 million to 25 million migrant workers from South and Southeast Asia. ILO estimates suggest there are more than 24 million migrant workers in the region, with foreign workers accounting for almost 92% of the workforce in some countries, such as the United Arab Emirates. These migration linkages underpin critical remittance flows — over $120 billion annually to India, roughly $22 billion to 23 billion to Bangladesh, and $30 billion to Pakistan, much of it from the Gulf. A large share of these workers are young, and concentrated in sectors such as construction and services, making them highly exposed to geopolitical and economic shocks.

Technology is intensifying these pressures. Automation, artificial intelligence and digital platforms are reshaping labor markets, with nearly a quarter of jobs globally expected to be transformed by 2027. Even advanced Asian economies are facing mismatches: In South Korea, the employment rate for higher-education graduates fell to 69.5% in 2024, while in Japan, younger workers are increasingly concentrated in temporary and contract roles despite broader labor shortages.

All of this is unfolding in a more difficult macroeconomic environment. The Iran war is driving up transport, food and energy costs across Asia, prompting subsidies and fiscal support. But rising borrowing costs are making such measures harder to sustain. Inflation is eroding real incomes, particularly for younger and lower-income groups, while tighter fiscal and monetary conditions constrain job creation.

The result is a reinforcing cycle: Slower growth limits employment opportunities, even as living costs rise. Economists describe this as a “skills paradox”: more educated workers, but too few quality jobs. The outcome is a growing pool of underemployed youth, now compounded by macroeconomic pressures. And the implications extend beyond labor markets. Persistent youth unemployment weakens productivity and consumption, and widens inequality, with long-term consequences.

The scale of the challenge is enormous. The global economy will need to create more than 600 million new jobs by 2030 simply to keep pace with population growth, with a large share of those jobs needed in developing Asia.

Countries such as Pakistan and the Philippines, where young populations are expanding rapidly, face particularly intense pressure to generate employment. Some economies offer examples of how policy can mitigate the challenge. Vietnam, for instance, has absorbed millions of young workers through export-oriented manufacturing and integration into global supply chains. Nonetheless, many Asian economies remain caught between expanding education systems and insufficient job creation.

In the long run, Asia’s economic stability will depend less on the size of its public debt. It will depend on whether the region can turn its vast youth population into a productive economic engine instead of a generation left waiting on the sidelines. Without sufficient employment opportunities, the demographic youth advantage can quickly become a structural vulnerability. The latest Gulf war has added another new dimension of uncertainty for the youth-driven workforce of Asian economies, which have been struggling with both youth unemployment and underemployment.