Challenging times for Asia Pacific
The UNESCAP recently released its publication, ‘The Economic and Social Survey of Asia and the Pacific 2012 – Pursuing Shared Prosperity in an Era of Turbulence and High Commodity Prices,’ and the global launch took place simultaneously in all ESCAP member countries on 10 May.
Speaking at the launch in Bangkok, the Executive Secretary of ESCAP stated that the Asia Pacific region was continuing to face a challenging environment and therefore, the focus of the report was to map the landscape to help through turbulence and volatility.
The report states that the region’s developing economies’ growth rate is projected to slow down to 6.5% as compared to 7% in 2011 and 8.9% in 2010. However, the slowdown in the growth rate is expected to lower the inflation rate in the region to 4.8% as compared to 6.1% last year.
The major reason for the slow growth, which has already been pointed out in all other similar reports released by international organisations this year, is the troubled economic situation in developed countries, which has resulted in reduced demand for exports from this region’s exports. However, the report also notes that region will lead the global economy despite the slowdown.
The region will remain the world’s fastest growing with China and India leading. The Executive Secretary at the launch said: “Growth in Asia and the Pacific remains better than in any other region – continuing as an anchor of stability and a new growth pole for the world economy. South-South trade with Asia-Pacific in 2012 will help other developing regions, such as Africa and Latin America, further reduce their dependence on low-growth developed economies.”
Among the key policy challenges and options for the region as highlighted by the report are: Managing the balance between growth and inflation, using several inflation fighting measures beyond monetary policy alone; coping with capital flows and dealing with considerable exchange rate volatility; and addressing jobless growth and unemployment by encouraging domestic consumption to act as an enhanced engine of growth and productivity, improving working conditions and income equality.
The ESCAP report identifies four groups of countries in the region:
(a) Incumbent “high income economies”
(b) Catching up countries
(c) Commodity boom countries and
(d) Aspiring countries.
Aspiring countries have been described as developing countries that have not benefited from high commodity prices and have to further enhance their productive capacities through diversification.
Sri Lanka has been categorised as an “aspiring group” country, because although its per capita income has increased relative to the top quartile of income distribution, this increase has not matched with the productive capacity as measured by the ESCAP productive capacity index which is based on an economy’s diversification and the competitiveness of its exports.
According to ESCAP, the decline in terms of trade creates incentives for boosting existing production and trade for the higher priced imports, but reduces incentives towards diversification which would reduce its growth prospects in the long term.
Such countries, according to ESCAP, need to balance the short-term gains in the current comparative advantages in labour intensive industries with the long-term need for new and more productive activities for which they need to become participants of supply chains of ‘catching up’ economies.
Sri Lanka, like all others in the region, will also face the risk of higher food prices which will affect the vulnerable people the most and result in severe and long-lasting poverty and social impact.
Possible risks that the region could face include renewed global financial crisis due to disorderly sovereign debt crisis, rise in oil prices due to political instability in producing countries and protectionist measures in developed countries in order to kick-start recovery.
Increasing intraregional trade and regional economic integration is recommended as a positive way for the region to go forward.
(Manel de Silva holds an Honours Degree in Political Science from the University of Ceylon, Peradeniya and has engaged in professional training in Commercial Diplomacy at ITC and GATT. She has served as a trade diplomat in several Sri Lankan Missions overseas and was the first female Head of the Department of Commerce as Director General of Commerce.)