Economic growth in the 21-member Asia Pacific Economic Cooperation (APEC) region is showing signs of improvement, with growth forecast at 3.3 percent this year compared to 2.6 percent in 2022, according to the latest APEC Regional Trend Analysis report.
The recovery of tourism and domestic consumption is driving economic activity, however, the adverse effects of the pandemic, inflation, higher debt, climate change, trade protectionism, geopolitical tensions, and economic isolation continue to cloud the outlook, explained the report released by the APEC Policy Support Unit today ahead of the APEC Economic Leaders’ Week.
Director of the Policy Support Unit, Carlos Kuriyama said there are positive signs in APEC but it is also dealing with a difficult period in negative risk conditions. Economic growth in the region is still uneven even though we hope for more stable economic growth in the coming years,” he said.
Inflation eased to 3.4 percent in September 2023, compared to the 6.6 percent rate recorded in the same period last year, the report added. The report explained the increase in recent months and warned that inflation may worsen the region’s economy especially as export restrictions, issues involving the fertilizer supply chain and weather conditions affect some agricultural products. Policy Support Unit Analyst and Co-Author of the report, Rhea C. Hernando said to fight stubborn inflation, many APEC economies have tightened monetary policy by raising interest rates. The report emphasises the importance of clear communication from policymakers when it comes to monetary decisions to manage expectations. The government needs to maintain fiscal prudence with targeted spending to protect vulnerable populations and rebuild fiscal buffers, according to the report.
He said high inflation not only caused the cost of living to be higher but also led to higher interest rates and increased uncertainty, which affected investment and consumption as well as debt sustainability. “This in turn could weaken the post-pandemic economic recovery,” added Hernando.
Impacted by a tighter monetary environment across the region, trade contracted in the first half of 2023, with export volume and value declining to -3.5 percent and -7.1 percent, respectively. Inflationary pressures and higher trade financing costs coupled with global uncertainty have resulted in sluggish trade in the region. “Exports and imports of merchandise trade are expected to increase slightly by 0.1 percent and 0.3 percent respectively in 2023 with a more optimistic growth forecast for merchandise trade in 2024 and 2025 at 4.3 to 4.4 percent,” said the Policy Support Unit Researcher and Co-Author of the report. , Glacer Nino A. Vasquez.
The report also explained that the future of trade in APEC is clouded by geoeconomic fragmentation and the proliferation of trade-restrictive measures, including trade remedies. The demographic transition will also pose challenges to the region’s economy as the population ages and the birth rate declines. This means that the working class will have to face a greater burden in supporting an aging population. “Multilateral coordination remains important to address trade protectionism, rising debt, climate change, the transition to a green economy and supply chain disruptions. “Cooperation is also important to address the complex challenges facing the APEC region,” Kuriyama said in a conclusion.
