The global economy continues to grow at a moderate pace in spite of the uncertainties about economic prospects in a number of large emerging and developed economies. The Asia-Pacific region is forecast to grow at 3.5 percent this year and 3.9 percent in 2014. Emerging markets continue to drive growth in the region accounting for 2.6 and 2.7 percentage points of the region’s growth in 2013 and 2014 respectively.
State of the Region 2013-2014 (pdf, 3MB)
Emerging market currencies are now depreciating against the US dollar, reflecting expectations of a narrowing of interest rate differentials. There are critical questions ahead on whether the depreciations will lead to policy actions that will increase interest rates in emerging markets and act as a break on already fragile growth.
For the global recovery to be robust and sustainable, governments need to implement policy initiatives to remove the uncertainty holding back private sector investment in both productive capacity and employment. There are efforts under way that could provide impetus to policy initiatives, notably the Regional Comprehensive Economic Partnership (RCEP) and the Trans-Pacific Partnership (TPP). If finalized, approved, and implemented, these agreements, and their eventual merger into an FTAAP, can be a growth driver for years to come. If deadlines continue to be missed, or if these agreements are so watered down that they do not meet the needs of the 21st century economy, the business communities will lose interest and the economic momentum of more efficient resource and capital use will be lost. Estimates suggest that the completion of these agreements could add as much US$2 trillion to global economic output by 2025.
The results of PECC’s annual survey of opinion-leaders are broadly in line with the consensus of economic forecasts that growth will in 2014 be much the same as this year. The survey also shows concerns about the major emerging market economies of the Asia-Pacific: China and India.
The survey results highlight a desire for policy actions on several fronts. The top 5 issues that respondents thought APEC leaders should address were:
• Regional economic integration
• The APEC growth strategy
• Attaining the Bogor Goals of free and open trade and investment
• Reducing the income inequality in the region
The survey results show continued strong support for APEC’s work on trade and investment liberalization with close to 75 percent of respondents agreeing that it has had positive effects on growth for their economy. At the same time, there was broad support for the assertion that stronger domestic institutions are required to ensure that the benefits of the integration process flow to the less well-off in society.
Opinion-leaders ranked education and vocational training as the most important way of promoting inclusive growth followed by structural reforms and then trade-related infrastructure.
Over 50 percent of respondents agreed that APEC needed to have a set of aspirational development goals to make its work on economic and technical cooperation more effective. The provision of affordable education to provide workers with the skills to compete in the global market place was ranked as the most important developmental goal for the region followed by physical connectivity and the provision of basic services.
Of all of these agreements, regional opinion-leaders were only positive about the likely conclusion of the ASEAN Economic Community (AEC) and the TPP by 2015. They were by far the least optimistic about reaching a conclusion for the WTO DDA with 59 percent stating it was not likely and only 8 percent stating likely.
While the region has made tremendous progress in promoting regional economic integration, it is challenged by growing income inequalities as well as a perception that some segments of society are unable to benefit from the integration process. Work on economic and technical cooperation is supposed to help bridge those gaps but thus far the results have been limited. There is a need to revisit how economic-technical cooperation (ecotech) is conceptualized and communicated to meet expectations on the delivery of outputs and outcomes benefiting stakeholders. Given the diversity of work undertaken, APEC should take a value chain approach to its work which requires a mapping exercise to connect activities to each other in a business production logic.
Regional aid for trade is particularly relevant to the many challenges faced by ecotech. The trade agenda of developing economies in general and Asian developing economies in particular is increasingly being pursued through regional economic integration and cooperation efforts. In many developing regions, fragmented markets inhibit trade and competitiveness. Regional cooperation is one way in which these markets can be enlarged, specialization can emerge, and risks can be shared. As reviewed extensively in OECD-WTO (2011, 2013), aid for trade has hitherto made considerable progress in mobilizing resources to overcome supply-side constraints and infrastructural bottlenecks that inhibit participation in the international marketplace.
Regional aid for trade can help developing economies benefit from existing and emerging trade opportunities via its ability to enhance the effects of regional cooperation. A regional approach to removing trade-related binding constraints, supported by national, multi-economy and regional strategies, can greatly augment the impact of trade flows. In fact, many competitiveness challenges are regional in nature. For instance, the trade performance of landlocked economies depends on the quality of the infrastructure in their neighbors.
The challenges facing policy-makers and the stakeholders they represent are constantly changing. While the region has benefited enormously from the integration process led by the removal of border barriers, many behind-the-border issues continue to constrain growth and development. The pace and magnitude of the changes that take place in economies, especially developing ones, means that economic and technical cooperation programs need to be more both more responsive and show tangible outcomes for those they are intended to impact. Without these capacity building programs the risk is that specific groups potentially affected by change attempt to resist the integration process. At a time when growth is volatile and protectionism is on the rise, outcome-oriented cooperation can play a crucial role in ensuring that the integration process continues and that stakeholders are ready to benefit from the process.
The process of economic integration of the Asia-Pacific region has resumed since the slowdown from the global economic crisis, according to the latest update to the PECC index of regional economic integration. The updates show that almost all Asia-Pacific economies are more integrated or dependent on Asia-Pacific markets. Noticeably, Singapore and Hong Kong are still the most integrated economies. As the freest business harbors, Hong Kong and Singapore benefit the most from economic recovery in trade, investment, and tourists.