The resilience of the economies of Southeast Asia as well as China and India to external shocks from Europe and the United States and two major natural disasters has highlighted the strength of their underlying economic fundamentals. Growth should continue to be robust over the medium term, led in Southeast Asia by Indonesia, and with growth in China and India maintaining continued high level growth rates by 2017. Growth will be more dependent on domestic demand and current account surpluses will be considerably smaller in relation to gross domestic product (GDP) than in the years leading up to the Global Financial Crisis. Southeast Asian countries as well as China and India face important challenges in realising their medium-term growth potential. Capital inflows are likely to continue to be strong and will require careful management and further development of financial markets if their benefits are to be realised and their risks contained. Cambodia, the Lao PDR and Viet Nam will need skilful monetary policy management to deal with their extensive dollarisation and to foster gradual de-dollarisation. Fiscal capacities in all the countries of the region will need to be reformed to improve revenue mobilisation and create more efficient tax systems. The emergence and rapid growth of the middle class in Southeast Asia, China and India is already having important economic effects. Consumer demand is shifting towards greater importance for automobiles and other consumer durables and housing, as well as education, health and other services where governments play a key role. Prospects for continued rapid growth in the middle classes in the region are favourable but governments face important challenges in ensuring that this growth is supportive of further poverty reduction and other social goals and that the “middle-income trap” that has sometimes afflicted other developing countries is avoided.