A global trade war and rising protectionism have taken its toll on Asia-Pacific economic growth, according to a new report by the Pacific Economic Cooperation Council.
The 14th annual State of the Region report for 2019-2020 by the PECC was released today in Kuala Lumpur, Malaysia, which will also host the Asia-Pacific Economic Cooperation (APEC) Leaders’ Meeting in 2020.
The report includes the results of a survey of 627 regional policy experts on key developments and challenges the Asia-Pacific region is facing. According to the survey, the top five risks to regional growth in the coming two to three years are:
• Increased protectionism and trade wars
• Slowdown in world trade growth
• Slowdown in the Chinese economy
• Slowdown in the US economy
• Lack of political leadership
The report shows the mood across Asia-Pacific has soured since last year with expectations for global growth turning distinctly negative. Regional economic growth is expected to slow from 3.8 per cent in 2018 to 3.3 per cent this year. Of greater concern is the sharp slowdown in the external sector with export growth slowing from 4 per cent in 2018 to just 0.9 per cent this year. While governments are acting to moderate a slowdown through stimulus measures and primarily interest rate cuts, other actions are also needed.
However, there remain some bright spots, with the regional policy community optimistic about the prospects for growth in Southeast Asia over the next year.
Eduardo Pedrosa, Secretary General, PECC, said 44 per cent of respondents to the survey are bullish on Southeast Asia.
“We believe this is because there is strong momentum towards integration in the region with the ASEAN Economic Community, many of them are in a demographic sweet spot, and there may be expectations of trade diversion,” he said.
The list of risks remains the same as in 2018, with the exception of a slowdown in the US economy entering the top five list. The US economy has been going through its longest ever economic expansion overtaking the boom that lasted from 1991 to 2001 that ended with the bursting of the dotcom bubble. The report speculates that there is potential for more to come in the form of increased protectionism and trade wars and a further slowdown in world trade growth – the top two risks in this year’s survey. However, it notes that governments are undertaking measures to forestall a slowdown through significant stimulus measures and recommends that these be complemented by significant economic reforms.
These conflicts come at a critical juncture for the world economy. After a slow multiyear recovery from the 2008 global financial crisis, the green shoots of economic growth are now being weighed down by unprecedented policy risks and uncertainties. The multilateral rules-based trading system is also being further degraded in fundamental ways. Equally significant issues around inclusiveness, environmental sustainability and the onset of the digital and technological revolution are rising to the fore. This context poses both a unique challenge and opportunity for Malaysia as the chair of APEC in 2020.
In 1994, APEC leaders set the target of 2020 for the region to achieve free and open trade in the Asia Pacific, next year APEC will need to both assess the progress made as well as set forth a new vision to drive the work of the organisation. “APEC was established on the basis that positive-sum cooperation was essential to sustain the region’s economic dynamism and progress,” said Dato Steven Wong, a contributor to the report.
The PECC vision for APEC is to work towards “an Asia-Pacific community of openly interconnected, and innovative economies cooperating to deliver opportunity, prosperity and a sustainable future to all their peoples”. Yet today, relations among key economies are marked by a degree of suspicion and hostility not seen in over half a century.