TRADE restrictions imposed by Asia-Pacific economies in the post-pandemic era, coupled with inflation and lingering effects of El Niño are slowing down the economic growth of the region.
The Asia Pacific Economic Cooperation (Apec) said the region’s growth in the first quarter of 2023 was pegged at 3.9 percent, lower than the growth rate of 5.8 percent in the first quarter of 2022.
“The Apec region tracks a delicate economic recovery amid ongoing uncertainties in the economic and geopolitical landscapes even as extreme weather and trade-restrictive measures add to the challenges,” the Apec Policy Support Unit said in its Regional Trends Analysis report published Monday.
Apec is a regional economic forum composed of 21 economies —seven Asean countries (Brunei, Indonesia, Malaysia, Philippines, Singapore, Thailand, Vietnam), five East Asia (China, Taiwan, Hong Kong, Japan, South Korea), three from Pacific (Australia, New Zealand, Papua New Guinea), five from the Americas (USA, Canada, Chile, Mexico, Peru), and Russia. These economies comprise 60 percent of global GDP.
Trade restrictions
The Apec’s policy research arm noted that some firms are changing their supply-chain strategies following the disruption caused by COVID-19. Global demand for goods has also “weakened.”
Data from the World Trade Organization indicated that the number of trade restrictive measures in force in Apec has been “on the rise” and has reached 480 as of May 2023. Trade remedies such as anti-dumping measures and countervailing duties in Apec reached 947.
These factors led to a contraction in the volume of Apec merchandise trade of 4.4 percent for exports and 4.2 percent for imports. The growth in the value of merchandise trade also entered the negative territory at -3.9 percent for exports and -4.7 percent for imports.
“These increases in trade-restrictive measures and trade remedies are a worrying sign, negatively affecting trade flows on an increasing number of goods,” the Apec Policy Support Unit said.
Trade in services in Apec grew faster, maintaining double-digit expansion in commercial services at 13.8 percent in 2022 for imports and 12.5 percent in 2022 for exports.
“Travel services surged significantly to 60 percent for exports and 83 percent for imports…while transport services also posted double-digit growth. The travel and transport sector has benefitted from a further relaxation of border requirements and pent-up demand,” it said.
Inflation
The Apec Policy Support Unit noted that monetary authorities have taken actions to bring down inflation and address the financial shock of the US and European economies. This brought down the inflation to 4 percent in the second quarter of 2023, from 5.9 percent in Q2 2022.
Countries with debts increased their vulnerabilities as “sustainability concerns” were aggravated by high interest rates.
“However, inflation could rise anew as geopolitical factors and the El Niño weather phenomenon translate to supply shocks and infrastructure damage,” it said.
El Niño
The El Niño weather phenomenon has brought heatwaves, floods, wildfires and droughts in the region. Severe El Niño episodes in the past have cost US$4-5 trillion global GDP losses and may likely impact the same way this year.
“(El Niño) could hurt crop yields, and at the same time, boost demand for energy products with hydroelectric power plants generating lower outputs, resulting in higher global commodity prices for food and fuel. Two, it could damage infrastructure, raising prices of construction materials. Disrupted supply chains from extreme weather conditions could also result in higher prices for affected products,” it said.
Recommendations
The Apec research unit suggested that governments manage inflation, and keep a “watchful eye” on inflationary pressures especially on potential supply shocks such as extreme weather.
“Maintaining monetary policy agility is important to be able to adjust policies when necessary,” it added.
It also recommended restoring fiscal space which would involve “prudent spending” by reducing non-essential expenditures and streamlining public services.
“Economies can also implement a targeted approach by supporting the vulnerable and prioritizing productive spending such as investments in infrastructure, education and healthcare to boost productivity. Restructuring or refinancing public debt could help manage debt,” it said.
As for climate change, Apec economies should work to intensify efforts to reduce carbon emissions by encouraging the use of technologies to reduce greenhouse gas emissions.
These approaches may include adopting sustainable modes of transportation, improving energy efficiency in homes and across industries, transitioning to renewable energy, using climate-friendly agriculture practices, promoting circular economy, reducing deforestation, and/or investing in green innovation and research.
“In addition, governments have to invest in infrastructure to get ready to face more extreme weather patterns,” it said.
The research arm stressed the need for “a more decisive role for multilateral cooperation” to face the challenges of economic fragility, geopolitical tensions and climate change.
“Fostering open dialogue, close coordination and collective action could help economies to focus efforts on economic and environmental considerations to build a sustainable and resilient future for the Apec region,” it said.
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