Asia Pacific Region to Avoid Recession, but Other Challenges Loom
The Asia Pacific region will experience slower economic growth in 2008, but is likely to avoid a sharp downturn due to the sub-prime mortgage crisis in the United States, according to the Pacific Economic Cooperation Council's annual State of the Region Report.
PECC forecasters expect 4.9% real GDP growth for the region as a whole in 2008, rising to 5.2% in 2009. This forecast assumes that the United States will not enter into a recession and that a recovery in the housing sector will take place in the second half of 2008. The US slowdown will affect exports from East Asia but this will be offset somewhat by robust import growth in China.
The external sector continues to be characterized by huge current account imbalances across the Pacific. ¡°There has been a gradual shift in the interpretation of transpacific imbalances not simply as a US deficit problem, but also as a question of the burgeoning Chinese current account surplus,¡± said Woo Yuen Pau, President and co-CEO of the Asia Pacific Foundation of Canada and Coordinator of the PECC report.
Despite Beijing¡¯s efforts to contain the surplus, the current account balance is forecast to balloon to about US$507 bn in 2009, which is roughly 10 percent of GDP. The Chinese currency is expected to appreciate to an average of 6.9 Renminbi/ US$ in 2008 and 6.4 Renminbi/US$ in 2009.
Downside risks dominate the economic outlook. ¡°With the full consequences of the sub-prime loan problem in the United States still playing out, the potential for turbulence in the financial markets to spill over into the real economy remains a serious concern. There are also worries about inflationary pressures in the world economy, speculative bubbles in Asia, and the rapid unwinding of the US current account imbalance,¡± said Woo.
The report points out that while East Asian economies continue to show strong growth, it is premature to suggest that the region has ¡°decoupled¡± from North America. ¡°Even though consumer spending is becoming more important in Asia, many economies still rely on net exports as a principal source of GDP growth,¡± said Woo.
The report includes the findings of PECC¡¯s annual survey of opinion leaders in the Asia Pacific region.
Survey respondents identified high energy prices, water pollution, and global warming as the top three risks to economic growth in the region.
¡°There was broad support from across the region on the need to address climate change,¡± said Charles Morrison, International Chair of PECC and President of the East West Center. The report suggests that APEC is well placed to contribute to a global climate change solution because it has a diverse membership that spans developed and developing economies, and encompasses a wide range of energy interests. However, APEC¡¯s ¡°aspirational goals¡± on energy efficiency and increasing forest cover fail to address the core principle of Kyoto, which is to reduce the global level of carbon emissions rather than just the intensity of energy use.
¡°The success of this approach will very much depend on whether APEC is able to keep climate change high on the agenda, and to mobilize concrete collective action,¡± said Morrison. Asia Pacific economies bear a heavy responsibility for carbon emissions as they account for approximately 64 percent of global carbon emissions.
The survey of opinion-leaders found considerable dissatisfaction with the current state of regional organizations at both the transpacific and sub-regional levels. In general, APEC and ASEAN were rated more highly than their younger siblings, namely the East Asia Summit and the ASEAN plus Three.
Opinion leaders remain split, however, on whether APEC is as important today as it was in 1989, and they see nagging problems in both the institutional structure and focus of APEC, and in its lack of commitment from member economies.
Morrison said: ¡°The recent decision on the part of APEC leaders to strengthen the Singapore-based Secretariat is a positive sign of renewed commitment on the part of member economies, but there is still resistance to deeper institutional development.¡±
Respondents overwhelmingly agreed with the idea that Asian economies should play a bigger role in multilateral institutions like the IMF and the World Bank. As Asia¡¯s economic weight increases, the case for stronger representation in international organizations – and greater responsibility for the international economic system -- will be irresistible.
PECC¡¯s State of the Region Report consists of three sections: The Regional Economic Outlook, Medium and Longer Term Challenges for the Region, and Regional Institutions. It is based on a survey of Asia Pacific opinion leaders and forecasts from Pacific Economic Outlook panel. The report is reviewed by an editorial committee consisting of members of the PECC Standing Committee. Electronic copies of the report may be downloaded at www.pecc.org/sotr
For further information:
Eduardo Pedrosa, Secretary General, PECC International Secretariat, eduardo.pedrosa@pecc.org +65 978 578 14
Betty Ip, Media, PECC International Secretariat, betty.ip@pecc.org, +65 6737 9822, Ext 16
Pacific Economic Cooperation Council
The Pacific Economic Cooperation Council (PECC) is an independent non-government international organization committed to the promotion of cooperation and dialogue in the Asia Pacific. Founded in 1980, PECC is a network of member committees composed of individuals and institutions dedicated to this mission. The Council is one of the three official observers of the APEC process.
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