UN ESCAP Survey Predicts Modest Economic Recovery in Asia and the Pacific

Bangkok (United Nations Information Services) The United Nations Economic and Social Commission for Asia and the Pacific (UN ESCAP) is predicting modest economic growth in the region during the coming year.

UN ESCAP made the prediction in its annual Economic and Social Survey of Asia and the Pacific 2002.

The 246-page publication, with the theme Economic Prospects: Preparing for Recovery, was released today at UN ESCAP's headquarters in Bangkok.

"Our report is cautious, it's a modest recovery," said Mr. Kim Hak-Su, Executive Secretary of UN ESCAP.

Overall, regional GDP output fell by 3.9% last year, the Survey reports.

Most countries in Asia and the Pacific have suffered from the global economic slowdown, and many are still feeling the negative effects of the 1997 financial crisis.

The United States is the destination for 22% of all exports from the ESCAP region, and recovery in the US economy is key to future economic growth in ESCAP countries.

"The United States economy is turning around and, overall, Asian economies will grow in 2003," Mr. Kim said.

"The recovery depends on three things," he said. "Low interest rates, stable, low, energy prices, and consumer spending."

But one hindrance to faster growth is the problem of non-performing loans on the books of many Asian financial institutions.

"Unless these problems are solved, no country can take full advantage of the recovery - there's a long way to go," said Mr. Raj Kumar, UN ESCAP Chief of Development Research and Policy Analysis Division.

ECONOMIC AND SOCIAL SURVEY OF ASIA AND THE PACIFIC 2002

HIGHLIGHTS FOR THE MEDIA

* In early 2001 the ESCAP secretariat had forecast that GDP growth in ESCAP developing economies would decline by around 1 percentage point to 6.0 per cent in 2001 and that there would be a slight rise in inflation in those economies. In the event, the forecast proved to be off the mark. GDP growth declined by 3.9 percentage points in the developing economies while inflationary pressures were marginally more subdued than had been forecast.

* The poorer GDP outcome in 2001 was associated with a sharp downturn in world trade growth, from over 12 per cent in 2000 to 1 per cent in 2001. This was triggered by a decline in information and communication technology (ICT) imports by the United States of America, whose knock-on effects spread rapidly to ICT component suppliers, particularly those in East and South-East Asia. Economies with high trade-to-GDP ratios were especially vulnerable to the downturn in external demand.

* As at early March 2002, signs of a global and regional upturn are mixed, although evidence of a gentle recovery is becoming more discernible. The majority of the ESCAP economies are expected to exceed their 2001 GDP growth rates in 2002, but the improvement is likely to be modest.

* The recovery in 2002 is conditioned by both external and domestic factors. Externally, the overall economic environment in the United States the main engine for a global upturn, remains uncertain by and large, despite some positive signs on the horizon, such as improved consumer confidence and a significant increase in output in the last quarter of 2001. Japan is in the throes of yet another recession, the third in the last decade, while the European Union, on present evidence, is unlikely to match its 2001 performance in 2002. Domestically, most economies continue to grapple with the inevitable trade-offs involved in running loose fiscal and monetary policies in the short term against the need to maintain sound macroeconomic fundamentals over the medium term.

Policy challenges

* The dramatic suddenness of the 2001 global slowdown poses a major challenge for all economies in the ESCAP region. Slow growth in 2001 and a hesitant recovery in 2002 will almost certainly have an adverse social impact through higher unemployment and the constrained capacity of Governments to address emerging social problems and alleviate poverty through higher public expenditure.

* Economic recovery in the ESCAP region in 2002 and beyond is essentially predicated upon a significant improvement in the external environment, supported by appropriate domestic policy measures. However, the varying characteristics of each subregion suggest that policy approaches need to be conceived in a more nuanced way in order to reflect the differences between and within the various subregions or within a particular group of countries, for instance, the least developed countries.

* At the national level, most Governments would need to put in place measures to preserve or enhance the momentum of growth through counter-cyclical fiscal and monetary policies; the latter would take precedence where public debt was already at a high level. Rebalancing of taxation could also be undertaken to improve incentives for production and investment.

* At the same time, Governments should reiterate their commitment to addressing and resolving the many challenges involved in reforming the financial and corporate sectors and to improving transparency and governance. It is a truism that healthy financial systems are a sine qua non for stable, broad-based recovery. Decisive action to deal with the problem of non-performing loans and restructure corporate balance sheets requires changes in the socio-economic milieu as much as changes in the law and the availability of additional financial resources. Progress would naturally be difficult and slow in this area, but reform efforts need to be sustained or made more robust.

* In the area of trade, it is imperative that countries avoid taking restrictive measures in the current situation and thus risking a downward spiral in output. In this connection, the onus lies on both developed and developing countries. Indeed, developed countries should accelerate the implementation of their commitments on trade liberalization, especially in textiles and agricultural commodities. Developing countries could increase the flow of trade by enhancing trade facilitation, such as through more streamlined customs clearance procedures. Individual countries could improve their external competitiveness significantly through lower trade transaction costs and better access to market information.

* Finally, from a general perspective, it is clear that the content of growth is as important as its pace. All Governments should continue to stress the need to preserve and promote social cohesion, reduce poverty and ensure environmental integrity, which are critical preconditions and parameters for stable, equitable and sustained long-term growth itself.

* The slowdown in 2001 needs to be seen against the background of achieving the millennium development goals in the areas of poverty eradication, universal primary education, promotion of gender equality of empowerment of women, reduction of child mortality and improvement of maternal health. In this regard, there are grounds for optimism that most of the goals can be achieved in the ESCAP region. However, this would require in-depth analysis and the preparation of the necessary policy strategies. The achievement of the goals in the least developed countries depends critically upon donor countries accepting the need to increase ODA to 0.7 per cent of GNP.

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