The Asia-Pacific is forecast to grow by 3.4 percent in 2016, much the same rate as in 2015 and this is expected to continue into 2017. Growth for both advanced and emerging economies in the region is significantly lower than during the pre-crisis years. Of bigger concern is that these mediocre growth numbers have been attained through substantial support from stimulus packages that cannot be sustained over the longer term. Questions remain as to how the region’s economies would fare once these extraordinary measures are phased out and as monetary policies normalize. In addition, there are added uncertainties emanating from the consequences of the Brexit referendum, as well as the overall public resentment towards globalization and free trade.
While 51 percent of respondents had positive views on the political environment for freer trade in the region while 25 percent had negative views or a net favorability of 26 percent, there were sharp differences depending on where the respondents came from. Respondents from North America were the most pessimistic with 43 percent having positive views and 33 percent negative while by far the most optimistic were respondents from Pacific South America, 71 percent were positive and only 15 percent negative. An overall favorability rating of 26 percent, while still positive, would give pause to any decision-maker on the ability to move forward on an ambitious agenda. Much more needs to be done to make the case for freer trade if any of the ongoing and putative initiatives are going to succeed.
In a survey of over 700 policy experts from business, government and the non-government sectors, the top five risks to growth were:
• slowdown in the Chinese economy;
• continued slowdown in world trade growth;
• failure to implement structural reforms;
• lack of political leadership; and
• slowdown in the US economy.
While a great milestone has been achieved early this year with the historic signing of the Trans-Pacific Partnership (TPP), it remains to be seen how long we may need to wait for this to be ratified by the US or if ever. Nevertheless, the ongoing work by APEC on FTAAP needs to continue, according to the survey. Over 70 percent of respondents agreed that ‘APEC should focus its work on trade policy to achieving the FTAAP.’ Respondents also felt positive towards FTAAP with 71 percent saying it would have positive impact on their respective economies.
All of the above uncertainties raise the very real question of where growth will come from. As this report highlights in Chapters 2 and 3 in particular, services sector will clearly be the key engine of growth for the Asia-Pacific economies. This is reflected in the list of top 5 key sectors for future growth as seen by the survey respondents:
• digital trade, e-commerce and the internet economy;
• information and communications;
• financial and insurance activities; and
Further, there was a convergence of views among both emerging and advanced economies that the liberalization of services trade was beneficial to their economies in terms of improving the overall quality of services delivery, for creation of jobs, and for lowering prices for the consumers. Chapter 2 contributed by Dr. Sherry Stephenson outlines the main reasons as to why services are of critical importance to the region and its economies. With the ‘servicification’ in the manufacturing and agriculture sectors, along with the growing proportion of services in consumption and investment, efficient services enhance the competitiveness of the entire economy. This can be measured in terms of services’ contribution to GDP growth as well as its share in exports. The services sector also employs the largest number of workers in both emerging and advanced economies of the region compared to manufacturing or agriculture and mining sectors. Additionally, services are key to innovation and productivity increases, helped by the fast-paced developments in the digital technologies and the Internet-based tools.
The policy community’s views on what should be the top priorities for the APEC Leaders’ discussions in Lima were:
• Progress towards the Bogor Goals and the Free Trade Area of the Asia-Pacific (FTAAP)
• The APEC Growth Strategy
• Structural reforms
• The emergence of anti-globalization and anti-trade sentiments
• Improvement in regional logistics and transport connectivity
The top two were also ranked highest last year but it is noteworthy to see structural reform coming in third after APEC adopted the Renewed APEC Agenda for Structural Reform (RAASR) in 2015, in which APEC economies are expected to set out their own individual action plans for implementing reforms by 2020. The emergence of anti-globalization and anti-trade sentiments ranked highest for respondents from North American and Oceania. As seen in charts in Chapter 3, we see that this issue ranked highest for the advanced economies whereas it ranked tenth for those from the emerging economies.
On the question of potential expansion of APEC membership those from Pacific South America were most enthusiastic with 73 percent agreeing to the idea while only 32 of Southeast Asians agreed. About a third of respondents had no opinion one way or another and it also ranked very low as a priority issue to be discussed by the Leaders in Lima.
Chapter 4 is the latest update to PECC’s annual index of economic integration in the Asia-Pacific region. The composite index for 2013 shows that the level of integration – measured by intra-regional FDI flows, tourism, trade, and similarity of economies in terms of education expenditure, life expectancy, urban ratio, and others - has dropped to almost 2009 level. The latest ranking shows that Singapore and Hong Kong (China) are again at the top of the list in terms of the frequency and depth of interaction and integration with the rest of the economies in the Asia-Pacific. In contrast, China and the Philippines were least integrated in comparison to others. It should be noted that higher ranking does not denote superiority to a lower ranking; being at the lower end simply indicates that an economy is oriented more globally than regionally.