Despite significant challenges this year, a global economic recovery is projected for 2021, contingent on reduced global volatility and greater multilateral cooperation to contain the COVID-19 pandemic, according to a new report by the Pacific Economic Cooperation Council (PECC).
The 15th annual State of the Region for 2020-2021 was recently released, ahead of an Economic Leaders’ Meeting hosted by the Asia-Pacific Economic Cooperation (APEC) on November 20. In 1994, APEC leaders adopted the goal of free and open trade and investment in the Asia-Pacific by 2020. This year, the 27th APEC Economic Leaders’ Meeting saw the launch of the APEC Putrajaya Vision 2040, which envisions an open, dynamic, resilient and peaceful Asia-Pacific community by 2040, for the prosperity of all people and future generations. The economic outlook for the Asia-Pacific has improved somewhat in recent months, but recovery will be uneven and fragile as the global pandemic has deepened in some places. Asia-Pacific economies are expected to shrink by about 3.1 per cent in 2020. Growth of five per cent is now expected next year which is expected to decline towards 3.5 per cent in subsequent years.
Governments have been implementing fiscal stimulus packages to assist people and businesses struggling through the difficult times. The stimulus packages vary in their magnitude – as a percentage of Asia-Pacific GDP they are approximately 10.6 per cent of the economy. For Brunei, fiscal stimulus amounts to 3.2 per cent of the economy.
PECC Secretary General Eduardo Pedrosa said, “While there is hope for a recovery in 2021, the risk of protectionism holds back investment in new jobs and innovation. It will be essential for the region to respond appropriately and decisively to restore confidence for sustainable recovery.”
Similarly, for trade, export and import figures are expected to fall by 8.6 per cent and 9.7 per cent respectively in 2020 but will rebound to 7.8 per cent and 9.2 per cent growth in 2021. However, this is unlikely to offset losses in the medium-term as the risk of protectionism and slowing trade growth have weighed in heavily on confidence for a sustainable recovery.
Efforts in poverty reduction and elimination have also been hampered by the pandemic leading to an exacerbation of income inequality in both advanced and developing economies within the region.
According to the World Bank, should the worst-case scenario materialise, the pandemic will wipe out all poverty reduction achievements over the past five years. A deeper discussion into social and fiscal reform is critically needed to combat these effects and align with APEC’s goals.
Foreign direct investment (FDI) has also taken a hit and is expected to drop below USD1 trillion for the first time since 2009. The impact of widespread lockdown, demand shock and policy uncertainty have affected both greenfield investment which has seen a 30 per cent drop, and cross-border M&As, which fell by 21 per cent.
Prolonged shutdown of economic activities is likely to have a larger impact on emerging economies that are reliant on foreign investment for industrial activity and infrastructure development.
PECC Co-chair Ambassador Su Ge said, “Improving connectivity was not only important for boosting growth but underpins the region’s other goals – regional economic integration, free and open trade and investment, improving the quality of economic growth, shared prosperity, and enhance resilience of development.”
Meanwhile, Vice Chair of Australia PECC Professor Christopher Findlay said, “Given the need for growth boosting initiatives after the COVID-19 crisis, a fresh look at the role that trade integration can play in boosting growth needs to be taken. The recently signed Regional Comprehensive Economic Partnership (RCEP) agreement provides welcoming momentum for trade integration.”
The PECC is a non-profit international organisation committed to the promotion of cooperation and dialogue in the Asia- Pacific. Founded in 1980, the PECC is a tripartite network of 26-member committees comprising individuals and institutions dedicated to this shared mission. As the only non-governmental official observer of APEC, PECC provides independent business and research input for the regional policy-making process.