State of the Region Report 2011

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State of the Region Report 2011-2012


sotr-2011

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.


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iconState of the Region 2011-2012 (pdf, 2.97MB)


Content:

Message from the Co-Chairs of PECC

Message from the Coordinator
Executive Summary

Chapter 1: Economic Outlook

  • On Shaky Ground
  • Emerging Markets Driving Growth
    • Figure 2: Revisions to the IMF’s Forecast (%)
  • Asia-Pacific Economies
    • Figure 3: Sub-Regional Contributions to Asia-Pacific Growth
  • Rising Concerns over Inflation
    • Figure 4: Inflation in the Asia-Pacific
    • Figure 5: Food and Oil Prices
  • Unemployment
    • Figure 6: Unemployment in the Asia-Pacific
    • Figure 7: Current Account Balances
  • Current Account Imbalances
  • Exchange Rates
    • Figure 8: Real Effective Exchange Rates (Source: IMF)
  • A Sustainable Recovery?
    • Figure 9: Fiscal and Monetary Expansion
  • Less Room to Maneuver
  • Changing Asia-Pacific Trade Patterns
  • Exports to North America Slowing
    • Figure 10: Exports to North America
    • Figure 11: Asia-Pacific Trade Flows (US$ billion, 2010)
  • Exports of Electronic Circuits: Dominated by Intra-Asian Flows
    • Figure 12: Trade in Electronic Integrated Circuits
  • Exports of Petroleum: Dominated by Intra-American Flows
    • Figure 13: Trade in Crude Derived Oil Products
  • Exports of Cars: Dominated by North American Trade
    • Figure 14: Trade in Cars
  • Prospects for the Development of Transpacific Energy Trade
  • Trade in Services
    • Figure 15: Services Trade

Chapter 2: Survey Results

  • Top 5 Issues for APEC Leaders’ Meeting
  • Macroeconomic factors dominate risks to growth
    • Figure 3: Risks to Growth
    • Figure 4: Policy Objectives for Achieving Sustained Growth in the Asia-Pacific Over the Next Five Years
  • Innovation Critical to Sustained Growth
  • Behind-the-Border Issues Biggest Challenges to Doing Business
    • Figure 5: Challenges to Doing Business in the Asia-Pacific
  • Regulatory Impediments a Region-Wide Concern
    • Figure 6: Seriousness of Regulatory Impediments in Overseas Markets (by sub-region)
  • Pathways to Regional Economic Integration
    • Figure 7: Pathways to FTAAP
    • Figure 8: We should pursue regional economic integration on multiple tracks
    • Figure 9: Trade in Services and the WTO DDA
    • Figure 10: How serious is the issue of having safe and secure access to energy supplies for your economy?
  • Energy Security and Prospects for Transpacific Energy Trade
    • Figure 11: How important should different sources of energy be? (On a scale of 1 to 5 with 1 being not at all important and 5 extremely important)
    • Figure 12: Effectiveness of Actions to Promote Energy Security (On a scale of 1 to 5 with 1 being not at all effective and 5 extremely effective)
  • Nuclear Energy Post-Fukushima
    • Figure 13: Perceptions of Nuclear Power
  • Reducing Greenhouse Gas Emissions
    • Figure 14: Effectiveness of Policy Actions to Reduce Greenhouse Gas Emissions
    • Figure 15: Views on Government Subsidies for Energy
  • Regional Institutions
    • Figure 16: How effective are the following institutions in meeting its objectives (On a scale of 1 to 5, with 1 = not at all effective and 5 = extremely effective)
    • Figure 17a: How successful is the region in implementing the objectives articulated by APEC leaders : Supporting the Global Trade Regime
    • Figure 17b: How successful is the region in implementing the objectives articulated by APEC leaders : Achieving Free and Open Trade and Investment in the Asia-Pacific Region
    • Figure 17c: How successful is the region in implementing the objectives articulated by APEC leaders : Implementing a Balanced, Inclusive, Sustainable, Innovative and Secure Growth Strategy
    • Figure 17d: How successful is the region in implementing the objectives articulated by APEC leaders : Implementing Structural Reforms
    • Figure 17e: How successful is the region in implementing the objectives articulated by APEC leaders : Reducing Trade Transactions Costs
    • Figure 17f: How successful is the region in implementing the objectives articulated by APEC leaders : Improving Energy Efficiency and Reduced Energy Intensity
    • Figure 17g: How successful is the region in implementing the objectives articulated by APEC leaders : Enhancing Human Security

Chapter 3: Regional Economic Integration

  • Regional Flows and Regional Divergences Slowing
    • Figure 2: Regional Flows
  • Convergence Criteria
    • Table 1: Weightings of Convergence Criteria
    • Figure 3: Convergence Criteria
    • Table 2: Comparison of 2007 and 2008 indices
  • Methodology
    • Table 3: Weights of Different Dimensions of the Index

Annex A

Annex B

Member Committees

Associate & Institutional Members

 

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Discussion Forum

The Linkage between Services and Manufacturing in the US economy
Sherry M. Stephenson, Senior Fellow, International Centre for Trade and Sustainable Development


 Digital DNA: Disruption and the Challenges for Global Governance
Peter F. Cowhey (University of California, San Diego), 
Jonathan D. Aronson (University of Southern California)


Growth in a Time of Change
Pamela Mar, Director of Sustainability, Fung Academy | Fung Group


Why Connectivity is a starting point for real change
Pamela Mar, Director of Sustainability, Fung Academy | Fung Group


The TPP lives on – and Canada should be part of it
Hugh Stephens, Vice-chair, CANCPEC


After the TPP: What’s Next for Canada in Asia?
Hugh Stephens, Vice-chair, CANCPEC

Project Team 2011

Editorial Committee

Yuen Pau Woo CANCPEC/ President & CEO, Asia Pacific Foundation of Canada

Ian Buchanan AUSPECC/ Senior Advisor, Booz Allen Hamilton

David Hong CTPECC/ President, Taiwan Institute of Economic Research

Sangkyom Kim KOPEC/ Senior Research Fellow, KIEP

Charles E. Morrison PECC Co-Chair/ USAPC/ President, East-West Center

Yoshiji Nogami JANCPEC/ President, Japan Institute of International Affairs

Tan Khee Giap SINCPEC/ Associate Professor, National University of Singapore

Jusuf Wanandi PECC Co-Chair/ INCPEC/ Member, Board of Trustees, Centre for Strategic and International Studies, Indonesia

Manfred Wilhelmy CHILPEC/ Director, Chile Pacific Foundation

Wu Zhenglong CNCPEC / Vice-Chair, CNCPEC

Eduardo Pedrosa Secretary General, PECC International Secretariat