APEC REGIONAL TRENDS ANALYSIS
APEC REGIONAL TRENDS ANALYSIS
I. Counting What Counts
Gross domestic product (GDP) is an estimate of the value of all goods and services produced within an economy. GDP and its related concepts, such as economic growth and productivity, dominate policy discussions and are often used as a proxy of a government’s performance.
Like any source of data, GDP has its blind spots and limitations. It is an incomplete measure of the economy, and falls short on many aspects of economic production and interaction. It does not tell us anything about the quality of goods and services produced, the distribution of economic benefits, the environmental costs of economic activity, or the increasing importance of data in the digital economy. GDP does not provide much insight into human wellbeing.
GDP represents one important aspect of economic success, but it is not the only one. Reducing all economic policy discussions to their impact on GDP growth is an oversimplification of complex economic interactions and impacts. It renders all other attributes of the economy – such as distribution, inclusion and sustainability– as secondary considerations to maximising output.
Alternatives to GDP have been proposed, and some are in use by economy and sub- economy jurisdictions. However, none of them approach the importance given to GDP in shaping economic decisions and policy discussions.
APEC Leaders have been calling for balanced, inclusive, sustainable, innovative and secure growth since 2010, and alternative measurements are needed to track progress and inform policy. Discussions on improving current data and developing new ones are already happening in various APEC fora.
Regional cooperation was crucial in turning GDP from a research institution’s concept to the global standard of empirical economics today. As an incubator of ideas, APEC can contribute to this conversation on developing measures of wellbeing beyond GDP and in line with Leaders’ priorities beyond 2020.
II. Slower Growth, Bigger Challenges
Tensions in trade and technology along with Brexit-related issues have fuelled uncertainty, which in turn, has dampened confidence resulting in a pullback in investment and consumption spending, thereby slowing down global economic activity.
In APEC, the uncertainty on the external front has translated into a general moderation in growth, with the region expanding at a slower pace of 3.6 percent in January–June 2019 from a 4.3 percent GDP growth in January–June 2018. APEC GDP growth has been on a decelerating path since the second half of 2017.
APEC economies continued to rely on household spending as the main driver of growth, but this slowed down in the first half of 2019, while investment growth was flat and most APEC economies recorded negative net exports.
Given conditions of elevated uncertainty, the APEC region is expected to continue to grow but at a moderated pace in the period 2019–2021, in tandem with the global economy. Risks of a further escalation in trade and technology tensions remain, which could further weaken the global economy.
Downside risks could also come from a build-up in financial vulnerabilities as investors increase their risk-taking activities amid prolonged low levels of interest rates. Other contributing factors include the possible deterioration in business and consumer sentiments, the continued downward trend in inflation, and concerns about the medium- to long-term repercussions of climate change.
For too long, economies have depended on domestic consumption and trade to propel growth. These past few years, APEC and the global economy have learned that these sources of growth could prove unreliable amid a situation of heightened uncertainty.
Policymakers need to balance between supporting economic growth on the one hand and managing financial conditions on the other amid the prevailing environment of uncertainty. In the short term, addressing uncertainty means resolving trade and technology disputes by going back to the negotiating table to find immediate solutions. In the medium to long term, economies should look at other sources of growth beyond domestic consumption and global trade.
If there is one lesson to be learned from the current global economic situation, it is that economies need to channel their efforts toward structural reform measures that improve individual lives by facilitating access to economic opportunities for a wider segment of society, including women and vulnerable groups, so that economic growth benefits all in the long term.