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The worst of the global economic downturn which began in late 2008 now appears to be behind us. Yet, the outlook for 2010 and for a sustained recovery in the Asia-Pacific region remains uncertain. While economic growth has returned to most major economies, the rebound has been weak, and there are serious concerns about the ability of governments to continue providing fiscal and monetary stimulus to their economies. The downside risks to growth are large and these risks will likely persist for the foreseeable future.
The most important of these risks is the problem of so-called “global imbalances”, which in practice boils down to an imbalance between on the one hand the United States – which is saving too little and carrying too much debt – and on the other hand the Asian economies – which have relied too much on US consumer spending and on holdings of US debt. The resolution of the “global imbalance” problem in effect requires the rebalancing of growth in the Asia-Pacific region.
Chapter 1 of this report is based on the work of a PECC task force set up to look at the issue of rebalancing Asia-Pacific growth, and to identify new long-term growth strategies that are inclusive and sustainable. The task force was led by Professor Peter Petri of Brandeis University. His team of researchers from around the region have concluded that the US-Asia imbalance is not an insurmountable challenge in terms of dollar value, but that a long-term solution will require major structural changes in economies on both sides of the Pacific, and that this will require regional cooperation and domestic political will.
Our annual survey of opinion leaders also dealt with the issue of rebalancing growth in the Asia-Pacific region, as reported in Chapter 2. Respondents broadly agreed with the PECC task force on the need for more emphasis on domestic demand growth in Asia, and that the most important engines of growth in the next five years should be expenditures on social priorities (health, education, pensions); the liberalization and development of the services sector in Asia; and measures to promote a green economy.
Opinion leaders were much more optimistic about the economic outlook than they had been in the previous year’s survey, but admitted to a concern about downside risks in the near-term outlook. While respondents were generally satisfied with the crisis responses of major economies, they were much less satisfied with the performance of regional and global institutions, with the exception of the newly established G20.
In Chapter 3, we present an update to our index of economic integration in the Asia-Pacific region. First launched in 2008, the index tracks the extent to which the economies are becoming more alike in their economic characteristics (i.e. “convergence” measures) as well as the relative importance of regional trade, investment and human flows compared to economic relations with the rest of the world. To the extent that APEC and the Bogor targets are fundamentally about deepening regional economic integration, this index provides one measure of APEC’s success in the last 20 years.
The latest results for our integration index suggest that the Asia-Pacific region as a whole is more integrated at the end of 2006 than it was in 1990. The index shows that there has been a definite trend towards deeper regional integration of trade, investment and people flows. However, the measures of “convergence” show a widening of the gap since 1998 in terms of GDP per capita, life expectancy, level of urbanization, and educational investments. The growing development gaps within the region (not to mention within economies) should be a cause for concern not only because of the welfare of the populations that are left behind, but also because widening inequality could undermine the continued deepening of trade, investment, and human flows in the Asia-Pacific region.
Yuen Pau Woo