Executive Summary: ESCAP’s Economic and Social Survey of Asia and the Pacific 2010The 2010 edition of the oldest and most comprehensive annual review of economic and social development spanning all economies in this vast and diverse region, the Economic and Social Survey of Asia and the Pacific 2010 assesses the critical issues, policy challenges and risks that the region faces in the months ahead as it leads the world economy to recovery after the first global economic contraction in modern history. It also outlines the elements of a policy agenda for regaining the region’s dynamism through inclusive and sustainable growth.
1. 2009: an uneven pattern of impacts with the outlook for 2010 showing a sharp rebound, with downside risksEven at the height of this crisis, Asia and the Pacific displayed a new-found resilience. Its developing economies achieved an annual growth rate of 4.0%, making it the fastest-growing region in the world, thanks to growth in China and India at 8.7% and 7.2%, respectively. However, the rest of Asia-Pacific’s developing economies contracted in 2009 by 0.6%.
These contrasting performances resulted from many different factors. The first concerned the extent of dependence on developed country markets. The worst-affected countries had shares of exports to GDP that exceeded 60%, and the greater the share of these exports that were absorbed by the developed markets the greater was the economic contraction. The second factor concerned the extent of exposure to the exit of portfolio capital as investors sought to cover their losses in the western capital markets. This brought pressures on exchange rates and created financial instability as well as liquidity problems in countries that did not have adequate reserves. Thirdly, was a varying capacity to implement countercyclical response policies. The countries best able to mount rapid and large fiscal spending programmes were those that entered the crisis with strong macroeconomic fundamentals; in particular, stable inflationary trends, sound fiscal balances and low ratios of public debt to GDP.
The outlook for 2010 has improved significantly. The Asia-Pacific developing economies are forecast to grow by 7.0% in 2010 compared to 4.0% in 2009, led by the self-sustaining motors of China, growing at 9.5%, and India at 8.3%. Nevertheless, as policy-makers grapple with high liquidity in markets and inflationary pressures, they are faced with tough balancing acts on both monetary and fiscal policy. While they will want to tighten monetary policy to restrain inflationary pressures they will need to maintain real interest rates at par with global levels – to keep their exchange rates competitive and to encourage domestic economic growth. Survey 2010 explores different imbalances and gaps – macroeconomic, social, developmental, and ecological – and considers the potential of closing them for creating additional aggregate demand that could serve as new regional impulses for growth.
2. Imbalances, gaps and new sources of growthAs the countries of the region take steps to address macroeconomic, developmental and ecological imbalances they have an opportunity to create new motors of inclusive growth that will help them regain their economic dynamism. The region has close to one billion people living in poverty, which combined with wide development gaps, gives it considerable headroom for augmenting aggregate demand through boosting private consumption and investment. Similarly, the Asia-Pacific economies have the opportunity to develop new and greener industries and businesses based on innovations that will save energy and materials. In so doing they can provide more affordable products for the poor while maintaining growth and promoting environmental sustainability.
Survey 2010 argues, therefore, that in the aftermath of the global economic crisis, inclusive and sustainable growth is not only desirable but also a necessary condition for regaining the region’s dynamism. It then goes on to outline a policy agenda at national and regional levels that might assist in unleashing the latent potential of domestic and regional demand to address the three imbalances in an integrated manner.
3. A regional policy agenda for inclusive and sustainable growthSurvey 2010 explores ways of increasing aggregate demand and supply – establishing the region on a more inclusive and sustainable path of development and boosting regional connectivity. For this purpose it proposes an agenda with five prongs.
- Strengthening social protection
- Promoting agriculture and rural development: fostering a second green revolution
- Supporting new engines of growth: green innovations
- Enhancing financial inclusion.
- Evolving a regional framework for cooperative action deals with regional consumption and includes:
- Regional economic integration
- Integrated trade and transport policies
- ICT superhighways
- Regional financial architecture