APEC Bulletin 12 November 2023
Overcoming Challenges in APEC's Post-Pandemic Recovery
By Rhea Crisologo Hernando, Glacer Nino A. Vasquez and Carlos Kuriyama
Uneven growth and downside risks
The APEC region’s GDP growth improved to 3.3 percent in the first half of 2023 from 2.9 percent a year ago. The rebound in tourism and domestic consumption is driving economic activity in the APEC region. However, growth is uneven across the region, with some expanding above the APEC average while the majority are either growing below average or contracting.
APEC walks a tightrope amid downside risks. While the region is expected to grow by 3.3 percent for the whole year of 2023, the pandemic legacy, stubborn inflation, higher debt levels, climate change, geopolitical tensions, trade protectionism and geoeconomic fragmentation are casting shadows over APEC’s prospects. Upside opportunities for growth could come from sustained strength in tourism and consumption activity as well as continued targeted fiscal support. From 2024 until the medium term, growth in APEC is expected to stabilize to a range of 2.8 - 2.9 percent, albeit slower than the rest of the world. Uncertainty in the economic landscape is complicating efforts towards a firmer post-pandemic recovery.
Inflation: A thorn in the side
An uptick in inflation was observed in August-September 2023 at 3.4 percent, particularly due to higher prices of energy, sugar and rice. Supply side factors, including oil production cuts by OPEC+ members and export restrictions, further exacerbated by weather conditions, have led to spikes in commodity prices.
A tighter global supply outlook for oil coupled with robust demand, as well as adverse weather conditions, export restrictions and disruptions in the fertilizer supply chain affecting some agricultural products could lead to a resurgence in inflation. The impact of elevated inflation on the economy goes beyond higher costs of living, as it usually leads to increased interest rates and amplified uncertainty that adversely affect investment and consumption, as well as debt sustainability, among other economic consequences. These in turn could weaken the post-pandemic economic recovery.
Nonetheless, despite these recent developments affecting some key commodity prices, inflation in September 2023 was lower than the year-ago rate of 6.6 percent, due to swift monetary policy action among APEC economies. To fight inflation many APEC economies have been tightening monetary policy by raising interest rates. Compared to the end-2022 level, interest rates went up between 0.25 - 1.25 percent in most APEC economies as of the latest available data in October 2023, while a few economies opted to reduce monetary policy rates to boost economic activity.
Trade contraction amid geoeconomic fragmentation
Merchandise trade contracted in the first half of 2023, with the volume and value of exports declining year-on-year by 3.0 percent and 6.5 percent, respectively, while imports decreased more by 3.5 percent and 7.1 percent during the same period. Trade activity was negatively affected by tighter monetary conditions in response to persistent inflationary pressures coupled with uncertainties in the global environment.
In line with the global trade outlook, APEC expects sluggish trade in 2023, with the volume of merchandise exports and imports growing by only 0.1 percent and 0.3 percent, respectively. A more optimistic outlook emerges for the near-term period, as the region is expected to post a more stable economic growth, with a projected expansion in merchandise trade of 4.3 - 4.4 percent in 2024-2025.
Trade in commercial services is still growing at higher rates, but at a decelerating pace as it expanded at a lower rate in Q1 2023 at 6.8 percent for exports and 10.6 percent for imports compared to year-ago levels. The robust expansion in travel services was partly offset by the slowdown in transport and goods-related services.
The future of trade in the APEC region faces threats due to geoeconomic fragmentation and the accumulation of trade-restrictive measures, including trade remedies. Moreover, according to the WTO, indications of disruptions within supply chains are beginning to surface. For instance, the proportion of intermediate goods in international trade, serving as an indicator of global supply chain activity, dropped to 48.5 percent during the first half of 2023, in contrast to the average of 51.0 percent observed over the preceding three years.[1]
Aging population and economic costs
ooking ahead, shifting demographics is going to be one of the main challenges in the APEC region. There is a growing elderly population as the percentage of the population in APEC ages 65 and above saw an almost two-fold increase in three decades from 6.8 percent in 1991 to 13.2 percent in 2021. A sharper increase is seen among economies in Northeast Asia, as its elderly population more than doubled to 15.0 percent from 7.0 percent during the same comparable period.
Adding to this, the share of the population aged 0 to 14 contracted in APEC during the same period from 28 percent to 19 percent. Northeast Asia and Southeast Asia have experienced a sharp reduction by 10 percentage points or more in the last three decades.
This demographic shift presents multifaceted challenges. Over the long term, an aging population means higher costs related to healthcare, pension, and social security, along with a shrinking workforce that can lead to skill shortages and economic stagnation. At the same time, the combination of low birth rates and a small youth population within this context implies that workers will face a greater burden in supporting a growing elderly population.
Overcoming challenges
APEC's journey to economic prosperity is marked by both opportunities and challenges. While the region is expected to grow at a more stable pace in the short to medium-term, supported by a rebound in trade, it is vital to remain vigilant and address uncertainties head-on. A balanced mix of monetary and fiscal policies, together with multilateral cooperation are essential tools in navigating an increasingly complex global economic terrain. Looking ahead, initiating appropriate reforms to counter the economic impact of an ageing population is critical to maintain vibrancy and growth. These recommendations include:
Clear and timely communication of monetary policy decisions is essential to manage expectations, control inflation and minimize the economic costs of interest rate hikes.
Prudent fiscal management focused on rebuilding buffers and protecting vulnerable populations is imperative. The economic recovery must be inclusive, ensuring that the most vulnerable in society are not left behind.
Multilateral coordination remains important for tackling rising debt, climate change, green economy transition, protectionist trade policies and supply chain disruptions. Cooperation is crucial to address the complex challenges facing the APEC region.
Recognizing that an aging population will have economic repercussions, economies must begin the necessary task of implementing reforms. The sequence and magnitude of the reforms could vary, depending on priorities and realities. Nonetheless, economies could consider the following: upgrading social security systems to ensure sustainability, including adjusting retirement ages, promoting private savings, and exploring innovative pension models; investing in lifelong learning and skills development programs to help older workers adapt to changes in the job market and remain employable; promoting the adoption of technology in the workplace to enhance productivity, including training older workers in digital skills; and encouraging immigration policies to attract skilled immigrants and integrate them into the workforce to offset demographic imbalances.
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Rhea Crisologo Hernando is analyst, Glacer Niño A. Vasquez is researcher, and Carlos Kuriyama is director at the APEC Policy Support Unit.
For more on this topic, download the latest APEC Regional Trends Analysis.
[1] https://www.wto.org/english/news_e/news23_e/tfore_05oct23_e.htm
APEC Growth Improves Despite Declining Trade and Inflation RisksIssued by the APEC Policy Support Unit
San Francisco, The United States, 12 November 2023
Economic growth in the APEC region is showing signs of improvement, with expected growth of 3.3. percent in 2023, compared to 2.6 percent in 2022, according to the latest APEC Regional Trends Analysis report.
The report, released by the APEC Policy Support Unit explains that a rebound in tourism and domestic consumption is driving economic activity. However, the legacy of the pandemic, inflation, higher debt, climate change, trade protectionism, geopolitical tensions, and economic fragmentation continue to overshadow outlook.
“There are promising signs in APEC, but it is walking a tightrope amid downside risks,” said Carlos Kuriyama, director of the Policy Support Unit.
“Economic growth in the region remains uneven though we are looking at a more stable economic growth in the years ahead,” added Kuriyama.
Inflation declined to 3.4 percent in September 2023, compared to the 6.6 percent rate recorded during the same period last year. The report noted an uptick in recent months and warned that inflation may aggravate the region’s economy especially since export restrictions, issues with the fertilizer supply chain and weather conditions are affecting some agricultural products.
“To fight stubborn inflation, many APEC economies have been tightening monetary policy by raising interest rates,” said Rhea C. Hernando, analyst with the Policy Support Unit and co-author of the report.
The report highlighted the importance of clear communications from policymakers when it comes to monetary decisions to manage expectations. It also noted that governments need to maintain fiscal prudence with targeted expenditure to protect vulnerable populations and rebuild fiscal buffers.
“High inflation not only causes higher living costs, but it also leads to increased interest rates and amplified uncertainty, which impact investment and consumption as well as debt sustainability. These in turn could weaken the post-pandemic economic recovery,” Hernando added.
As a result of a tighter monetary environment around the region, trade suffered a contraction in the first half of 2023, with the volume and value of exports declining to minus 3.5 percent and minus 7.1 percent, respectively.
Inflationary pressures and the higher cost of trade finance compounded by global uncertainties have resulted in sluggish trade in the region.
“Merchandise trade export and imports are expected to grow slightly by 0.1 percent and 0.3 percent respectively in 2023 with a more optimistic growth projection for merchandise trade in 2024 and 2025 at 4.3 to 4.4 percent,” said Glacer Nino A. Vasquez, researcher with the Policy Support Unit and co-author of the report.
The report further underlined that the future of trade in APEC is clouded by geoeconomic fragmentation and the accumulation of trade-restrictive measures, including trade remedies.
Shifting demographics will also pose a challenge to the region’s economy as the population is getting older and birth rates are falling. This means that workers will have to face a greater burden in supporting a growing elderly population.
“Multilateral coordination remains important for tackling trade protectionism, rising debt, climate change, green economy transition and supply chain disruptions,” Kuriyama concluded. “Cooperation is also crucial to address the complex challenges facing the APEC region.”
For more information on the APEC Regional Trends Analysis, visit this page.
For further details, please contact:
Masyitha Baziad +65 9751 2146 at mb@apec.org
Michael Chapnick +65 9647 4847 at mc@apec.org
Officials in San Francisco Advancing APEC’s Cooperation Toward RecoveryIssued by the Concluding Senior Officials' Meeting
San Francisco, The United States, 12 November 2023
Long recognized as the gateway to the Asia-Pacific, senior officials kickstarted APEC Economic Leaders’ Week with a series of meetings and activities in San Francisco, making inroads for a more innovative, sustainable and inclusive trade and investment in the region.
The Concluding Senior Officials’ Meeting is underway, bringing together all of the economic policies and initiatives driven by the United States’ overarching theme of “Creating a Resilient and Sustainable Future for All.”
Addressing APEC senior officials on Saturday, Nora Todd, 2023 APEC Alternate Chair of the Senior Officials’ Meeting, highlighted that policy discussions and new initiatives achieved this year is setting the scene for economic leaders who will arrive in San Francisco in the coming days.
“At each step of the way we found common ground and consensus on key policy priorities that are moving our economies forward,“ Todd said, highlighting policy deliverables such as the Detroit Principles and Recommendations for Equality and Inclusion and the Non-Binding Just Energy Transition Principles for APEC Cooperation.
“Our subject matter experts and ministers have worked together to demonstrate APEC’s importance across sectors and across the region,” she added.
Todd observed that hosting APEC is an opportunity not only to showcase America to the 20 visiting economies of APEC, but also to showcase APEC to America.
Setting connectivity as one of the priorities of APEC 2023, San Francisco’s iconic bridge represents the importance of business and people-to-people connectivity among APEC member economies.
“More than USD 100 billion in two-way shipping transactions flow between the port of San Francisco and APEC economies each year and much of it crosses the Golden Gate Bridge,” Todd said.
“The Golden Gate Bridge which image adorns our Leaders’ Week logo embodies the connection between APEC economies and the resilience of our region, and that's why the Golden Gate is the namesake of our leaders declaration this year,” she stated.
Todd recalled that San Francisco hosted the first APEC Women and the Economy Forum (WEF) in 2011. The WEF, now an established fixture on the annual APEC calendar, encourages economies to take concrete actions in removing barriers and maximizing women's full economic participation.
“San Francisco's proximity to cutting-edge companies based in Silicon Valley also makes the city an ideal partner to advance APEC’s focus on trade and investment, innovation and digitization, as well as sustainability and inclusion,” said Todd.
Practical work on this front includes accelerating efforts to implement the APEC Internet and Digital Economy Roadmap and looking at practical ways to enhance the inclusiveness of the region’s internet and digital economy.
“We are here in San Francisco to bring it all together and to show what APEC is all about; to demonstrate to the City of San Francisco, to the State of California, to the United States and to the world how, through the cooperation and collaboration between us all, we are able to deliver real results.”
Todd also shared that President Joe Biden, the Chair of the 2023 APEC Economic Leaders’ Meeting, is looking forward to engaging with all the economic leaders to illustrate how APEC’s policy priorities are paying real dividends for workers, families and businesses across the region.
“He is looking forward to showcasing our cooperation and collaboration within APEC that includes all that we have committed to achieve throughout our host year to make our economies more resilient, sustainable and inclusive,” Todd concluded.
For further details, please contact:
Masyitha Baziad +65 9751 2146 at mb@apec.org
Michael Chapnick +65 9647 4847 at mc@apec.org
