Executive Summary
Growth in the Asia-Pacific to Slow
Growth in the Asia-Pacific region is expected to slow to below 3.6 percent this year, down from 4.8 percent in 2010. The multispeed recovery from the crisis continues into 2011 with emerging economies performing considerably better than developed ones. Although the recovery continues, pessimism is on the rise and it is widely expected that the growth outlook for major developed economies will be further revised downwards in the last quarter of 2011. Emerging economies, however, are continuing to perform relatively well, contributing two thirds of the region’s 3.6 percent growth this year.
Inflation in Emerging Markets
Inflation in the region for 2011 is expected to be close to 3.0 percent and to moderate to 2.1 percent in 2012. However, as with the GDP growth figures, the aggregate number masks a multispeed region with inflation in developed economies running at 1.8 percent and emerging economies at 5.3 percent – the second highest rise in prices over the past decade. As with the forecasts for GDP growth, these are based on forecasts made by the IMF in April, and it is most likely that these forecasts will be revised upwards by the time of the October update later this year.
Growing Sense of Pessimism
Our annual survey of opinion-leaders reflects the growing sense of pessimism about the economic outlook. Over 65 percent of opinion-leaders expect global growth to be weaker over the next 12 months compared to the previous 12 months. The last time pessimism was this high was in 2008 just as the crisis was breaking.
Macroeconomic risk factors such as a slowdown in the US economy, a sovereign debt crisis in the Euro-zone, and a slowdown in the Chinese economy dominate the risks to growth in the region.
Opinion-leaders see investment in new technologies and innovation systems as the top policy objective for sustaining growth, followed by addressing the US fiscal and current account deficits and rebalancing growth in East Asia. When asked what the APEC leaders should focus on at their discussions in Honolulu during their annual summit, FTAAP ranked number 1, followed by green growth, WTO DDA, corruption, and the APEC growth strategy. However, views on pathways to a Free Trade Area of the Asia-Pacific (FTAAP) remain somewhat equivocal with different sub-regions preferring either the Trans-Pacific Partnership or the ASEAN plus agreements. The critical point is that there is no reason to force a choice, ultimately the ASEAN plus and TPP tracks can be mutually reinforcing. Clearly, opinion-leaders support this view with over 70 percent of respondents agreeing that regional economic integration should be pursued along multiple tracks.
There was also a high degree of support for what could be deemed as a sectoral initiative, albeit a global one, with over 70 percent of respondents agreeing that APEC members should take a lead in promoting a plurilateral agreement on services.
Sub-Regional Trade Dominates
The pattern of trade in major product categories is dominated by exchange within sub-regions rather than broadly across the Asia-Pacific. This is especially true in the case of oil and gas, for which there is virtually no movement across the Pacific ocean. The recent discovery of massive “unconventional gas” reserves in North America has raised the prospect of the emergence of a transpacific energy market.
Crisis Impacts Regional Economic Integration
The PECC composite index of regional economic integration shows that overall economic integration slowed in 2008 due to decreased intra-regional flows and increasing divergence among the economies of the Asia-Pacific region. As data for the index comes in with a significant lag, the index is measuring the state of integration as of the end of 2008. Although all three major flows that the index covers showed decreases in 2008, it was the drop in intra-regional flows of foreign direct investment that had the most impact on the index. This is not surprising given that FDI flows are a pro-cyclical indicator with the dip foreshadowing the negative shock from the economic crisis.
The convergence sub-index continued to fall in 2008. This subindex measures the degree to which the economies of the region are becoming more alike in terms of key economic variables such as GDP per capita, expenditure on education, and share of nonagricultural GDP. A falling index means economies in the region are not converging in terms of these indicators.
<< Previous
Next >>
