New growth drivers needed as Asia-Pacific economies slow down

MANILA, Philippines - New growth drivers are needed in the Asia-Pacific as the region expects economic expansion to be slower than initially estimated this year and the next, officials said on Monday.

“The traditional drivers of growth are running out of steam. Export-led growth is no longer sufficient to drive economic prosperity,” said Doris Magsaysay-Ho, chairman of the APEC Business Advisory Council (ABAC).

“The major economies in the region are undergoing structural transformation toward domestic demand-led growth,” she said in a statement.

The ABAC concluded its meetings ahead of the Economic Leaders Meetings of the Asia-Pacific Economic Cooperation (APEC) on Wednesday in Manila. Their statement, read by Ho, was accompanied by recommendations to boost growth and make it more inclusive.

This developed as the 21-member bloc slashed its gross domestic product (GDP) growth forecasts for this year and the next. For this year, economic expansion likely slowed to 3.1 percent from May’s projection of 3.2 percent.

For 2016, growth could accelerate to 3.4 percent, same pace as 2014, but slower than the original 3.8-percent forecast. GDP is the sum of all products and services created in an economy.

“We see modest growth this year…but we see a recovery next year,” said Denis Hew, APEC secretariat of policy support, said in a briefing.

“Private consumption continues to be the main driver of growth in the region. Much of that was driven by low interest rates that allowed greater access to financial resources,” he added.

In addition, “the recent drop in oil prices has increased disposable income” among consumers in the region.

On her statement, Ho said ABAC stressed domestic demand could further strengthen with support to micro-, small- and medium enterprises (MSMEs), which accounts for over 97 percent of firms in the region.

Increasing MSME productivity and access to finance are keys toward innovation and moving up the value-added chain to make their products and services more competitive. She said MSMEs lead the way toward a service-oriented regional economy.

“The key to unlocking the potential of services as an engine for growth lies in promoting its provision across borders, thus spurring efficiency and increasing availability,” Ho explained.

Hew backed this up, saying trade, which has been a traditional source of growth for APEC, has now been a drag after “major contractions” as of June. For the first six months, APEC exports were down 5.9 percent, while imports dropped 10.3 percent.

“We found that since the global financial crisis of 2008, we see the relationship to responsiveness to GDP (gross domestic product) growth much more significant in relation to private consumption, much more than trade,” Hew emphasized.

Aside from weak trade, lower commodity prices could impact differently on export-driven APEC economies such as Australia and China. Meanwhile, effects of the upcoming decision of the US Federal Reserve to hike rates could be muted.

“The decision to raise interest rates, so long as it is done in an orderly and predictable fashion, I don't think it will have an impact on the financial markets,” Hew said.

Ho said the challenge is to make growth felt and equal.

“While millions have been lifted out of poverty as a result of the prosperity created by the integration of the APEC region, income inequality has been rising,” she said.

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