Gains under ongoing initiatives ‘just a drop in the bucket’
Asia Pacific growth this year is likely to be the slowest since the global financial crisis, with economies in the region having to deal with global headwinds, the Pacific Economic Cooperation Council (PECC) said on Monday.
The PECC, in a report released on the sidelines of this week’s Asia Pacific Economic Cooperation (APEC) leaders’ summit in Manila, forecast regional growth of 3.2 percent for 2015. Slight expansions to 3.4 percent and 3.5 percent are expected for the next two years.
Asia-Pacific economies need to respond, officials said, noting that steps forward can be found not just within APEC but also outside the 21-member forum. More has to be done, however, it stressed, if inclusive growth is to be achieved.
“Growth for both advanced and emerging economies in the region is significantly lower than before the crisis years, indicative of some of the important structural changes taking place both within regional economies as well as in the Asia-Pacific region as a whole,” the PECC said in its “State of the Region 2015-2016” report.
For the Philippines in particular, the PECC said the economy would likely grow by 6 percent this year, in line with expectations that the government will miss its 7 percent to 8 percent target. For 2016 and 2017, upticks to 6.3 percent and 6.5 percent, respectively, were forecast.
The PECC said growth among Asia-Pacific economies was being pressured by volatility in financial and other asset markets. Foremost among the headwinds is a possible rise in US interest rates – the first time in almost nine years.
“That decision will be made on the basis of employment and inflation as per the Federal Reserve’s mandate but also with some due attention paid to the impact it would have on the global economy,” the PECC said.
Eduardo Pedrosa, PECC secretary general, told a press conference that there was “an urgent need for growth strategies” to respond to the slowdown.
Several initiatives that are already underway could help promote growth, the report said, including the China-proposed Asian Infrastructure Investment Bank (AIIB) and the US-led Trans-Pacific Partnership (TPP) talks.
The AIIB – seen as a counterpart of the World Bank, International Monetary Fund and the Asian Development Bank (ADB) — will have an initial capital of $50 billion. The Philippines is among the regional economies that signed a memorandum of understanding regarding the initiative.
The TPP, meanwhile, which currently does not include the Philippines, is estimated to generate nearly $240 billion in additional income for its members by 2025, the PECC said.
It also noted ongoing negotiations for the Regional Comprehensive Economic Partnership (RCEP) –between the Association of Southeast Asian Nations (Asean) and six partner economies – that is estimated to generate gains of around $550 billion by 2025. The Philippines is an Asean member.
At their meeting in Beijing last year, APEC leaders agreed to a roadmap for achieving the Free Trade Area of the Asia-Pacific (FTAAP), which would lead to estimated gains of around $2.5 trillion.
While the amounts noted are substantial, the PECC said more was required to make growth sustainable and inclusive.
“These amounts may sound impressive, but even if the benefits of the AIIB, TPP, RCEP and an FTAAP are fully realized, these are a drop in the bucket compared to what is needed,” it said.
Citing ADB estimates, the report said that Asia’s overall infrastructure needs between 2010 and 2020 alone amount to $8 trillion.
“Increasingly, economies aspire to, and demand, growth that is sustainable and inclusive.
This raises the very real question of where such growth will come from,” the PECC said.
This will require structural reforms or changes in government institutions, regulations and policies that will create business environments that support efficient markets.
“What is really important are behind-the-border issues like structural reform,” PECC Co-Chairman Don Campbell said.
The PECC said areas where large gains still need be made include raising productivity levels, vocational education and training, relieving infrastructure bottlenecks, promoting inclusive growth and increasing formal sector employment.
The State of the Region report was produced by a task force established by the PECC governing body. The PECC is nonprofit, policy-oriented, regional organization dedicated to the promotion of Asia-Pacific cooperation.