Time to rein­vig­o­rate de­mand across Asia-Pa­cific

China Daily (Canada) - - LIFE -

The Year-end Up­date of the Eco­nomic and So­cial Sur­vey of Asia and the Pa­cific 2015, pub­lished by the Eco­nomic and So­cial Com­mis­sion for Asia and the Pa­cific, iden­ti­fies an emerg­ing slow­down in the re­gion’s eco­nomic growth, which has im­pli­ca­tions for Asia and the Pa­cific’s con­tin­ued abil­ity to drive the global eco­nomic re­cov­ery.

Eco­nomic growth in the re­gion is ex­pected to plateau at about 5 per­cent in 2016. The year 2015 sawonly 4.5 per­cent growth, com­pared with markedly bet­ter av­er­age growth of 9.4 per­cent in the pre-cri­sis pe­riod be­tween 2005 and 2007. De­cel­er­a­tion in growth does not au­gur well for the im­ple­men­ta­tion of the 2030 Agenda on Sus­tain­able De­vel­op­ment, which is why ef­fec­tive di­ag­nos­tics are the pri­mary fo­cus of the ESCAP up­date.

Four key fac­tors have had an im­pact on re­gional eco­nomic per­for­mance, which will also have a sig­nif­i­cant global im­pact:

First, the con­tin­ued weak re­cov­ery and slug­gish de­mand in de­vel­oped economies is driv­ing the eco­nomic slow­down be­ing ob­served across Asia, but es­pe­cially in China.

Se­cond, for the right rea­sons, China’s en­deav­ors to re­bal­ance its econ­omy by stim­u­lat­ing do­mes­tic con­sump­tion have— com­bined with re­strained in­vest­ment, par­tic­u­larly by State-owned en­ter­prises— had a large im­pact. Be­cause of the size of its econ­omy and its role in intra-re­gional trade and in­vest­ment, China’s slow­down has had a ma­jor di­rect im­pact on growth in the economies of de­vel­op­ing Asia and the Pa­cific.

Third, China’s eco­nomic slow­down is also hav­ing an im­pact on equity and cur­rency mar­kets, in China as well as across the re­gion and be­yond, which in turn are hav­ing im­pli­ca­tions for wider eco­nomic and fi­nan­cial sta­bil­ity. We still be­lieve this is es­sen­tially a fi­nan­cial mar­ket cor­rec­tion and that China’s eco­nomic fun­da­men­tals re­main strong. Nev­er­the­less, China does face sub­stan­tial chal­lenges to the sus­tain­abil­ity of its growth, such as high in­equal­i­ties, rapid ac­cu­mu­la­tion of pri­vate debt and se­ri­ous pol­lu­tion is­sues.

Fourth, do­mes­tic de­mand in the re­gion has slowed, so Asia-Pa­cific economies need to pri­or­i­tize the rein­vig­o­ra­tion of both do­mes­tic and re­gional de­mand to re­vive growth and sup­port sus­tain­able de­vel­op­ment, through in­fra­struc­ture in­vest­ment that will gen­er­ate jobs, in­crease the fi­nan­cial re­sources of gov­ern­ments and im­prove the over­all de­vel­op­ment out­comes of Asia and the Pa­cific.

One way of boost­ing do­mes­tic de­mand is to tap the fis­cal space that is con­tin­gent on tax and other re­forms. Es­pe­cially in viewof the 2030 Agenda, gov­ern­ments will need to in­crease or re-pri­or­i­tize ex­pen­di­tures. In 2015, a num­ber of economies un­der­took sig­nif­i­cant fis­cal spend­ing pro­grams, in­clud­ing China, the Re­pub­lic of Korea, Fiji, the Philip­pines, Rus­sia and Thai­land. Fis­cal pol­icy can tackle cycli­cal and long-term chal­lenges, and re­lieve pres­sure on mon­e­tary pol­icy, pro­vided that tax rev­enues are strength­ened.

In many de­vel­op­ing economies there is also fur­ther po­ten­tial for stronger do­mes­tic de­mand due to favourable pop­u­la­tion dy­nam­ics, rapid ur­ban­iza­tion and a grow­ing middle class. How­ever, de­spite its po­ten­tial to con­trib­ute to growth in the re­gion, do­mes­tic de­mand in sev­eral economies has not seen ro­bust growth. High house­hold debt is one fac­tor hold­ing back do­mes­tic con­sump­tion in, for in­stance, Malaysi­aandThai­land. Rapid in­creases in pri­vate debt in th­ese economies call for vig­i­lance, es­pe­cially as fi­nanc­ing costs are likely to in­crease in the re­gion. Inother economies, such asRus­si­aandIn­done­sia, el­e­vated lev­els of in­fla­tio­nand cur­rency de­pre­ci­a­tion are al­so­hav­ing a nega­tiveim­pact on­con­sump­tion.

One way to strengthen growth is to fo­cus on im­prov­ing re­gional pro­duc­tiv­ity, which has been fall­ing since 2008, and mak­ing it more in­clu­sive.

In do­ing so, it is also par­tic­u­larly im­por­tant for the ben­e­fits of im­proved pro­duc­tiv­ity to be more equitably shared with work­ers, by trans­lat­ing th­ese into real wage in­creases. This would con­trib­ute to strength­en­ing do­mes­tic and re­gional de­mand. Eco­nomic growth sup­ported by in­creases in real wages is more re­silient than growth backed by the ac­cu­mu­la­tion of debt.

The au­thor is an un­der-sec­re­tarygen­eral of the United Na­tions and ex­ec­u­tive sec­re­tary of the Eco­nomic and So­cial Com­mis­sion for Asia and the Pa­cific.

MA XUEJING / CHINA DAILY

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