Subdued global trade requires new policies to sustain growth in the APEC region, recommended the APEC Policy Support Unit in a dialogue with the APEC Economic Committee on Sunday in Medan.
Emerging economies are increasingly the engine of global growth. However, in recent years, gross domestic product growth in large emerging economies, including Brazil and India, has begun to slow slightly. Because these large economies have been a driving force behind global growth in the past decade, their slowdown will have far-reaching implications on the APEC region.
“APEC emerging economies are at critical juncture. The question now is how to sustain growth,” said Dr. Alan Bollard, Executive Director of the APEC Secretariat in his presentation to the APEC Economic Committee. “In particular, economies that are the most open to trade such as Singapore and Hong Kong, China are being impacted by the changing global landscape.”
For the last several decades, trade growth has been closely aligned with import demand from emerging economies. With trade expected to rise only at a subdued rate over the next five years, sustaining a positive trajectory requires APEC economies to look for other engines of growth.
“Previously trade played an important role in APEC economy growth. But with global trade weakening, the combination of low domestic consumption and high reliance on export earnings makes some economies more vulnerable,” explained Quynh Le, Analyst of the APEC Policy Support Unit.
“Rebalancing towards domestic consumption is crucial to fuel future growth,” recommended Le. “Despite being home to 84 percent of the world’s population, emerging economies collectively account for just 31 percent of world consumption.”
Southeast Asia, with economies such as Indonesia, is the only region that maintained resilient growth during 2011 and 2012. According to the Asian Development Bank, who also presented at the APEC Economic Committee, the region’s resilience is due mostly to domestic factors including robust domestic demand and more prudent macroeconomic management.
“As part of the rebalancing of the global economy, we are also seeing the story of an expanding middle class in emerging economies,” said Dr. Bollard.
“But this growing middle class has different consumption patterns,” added Dr Bollard. “These consumers increasingly demand safe food, origins of products and better health and education infrastructure.”
“This puts new pressures on government policies and spending and ties directly to the work of the APEC Economic Committee,” he continued.
Policies recommended by the APEC Policy Support Unit include increased investment in soft infrastructure such as health and education as well as physical infrastructure. For example, better health safety nets will encourage consumers to save less and help fuel domestic consumption.
To avoid the “middle income trap” and slowing per capita income growth, the Asian Development Bank also recommended policies that encourage emerging economies to move up the global supply chain towards higher value-added production. In addition, further economic integration and regional cooperation would also benefit emerging economies.
The International Monetary Fund, the Asian Development Bank, the APEC Policy Support Unit and Dr Bollard presented to the APEC Economic Committee on Sunday in Medan.