Economic recovery in 2021 possible, but requires greater regional cooperation: PECC

While there is hope for a recovery in 2021, the risk of protectionism holds back investment in new jobs and innovation. It is thus essential for the region to respond appropriately and decisively in order to restore confidence for sustainable recovery.

This message was delivered by the Pacific Economic Cooperation Council (PECC) secretary general Eduardo Pedrosa with the council's 15th annual State of the Region 2020-2021 report, which was released ahead of an Economic Leaders' Meeting to be hosted by the Asia-Pacific Economic Cooperation (APEC) this week.

Ambassador Don Campbell, Co-chair, PECC, said: "APEC leaders meeting this week need to send a strong signal to businesses and consumers of a commitment to growth and stability. They have an opportunity to do so through APEC's post-2020 vision".

While the economic outlook for Asia Pacific has improved in recent months, recovery will be uneven and fragile. Asia-Pacific economies are expected to shrink by about 3.1 per cent in 2020. Growth of 5 per cent is now expected next year which is then expected to decline toward 3.5 per cent in subsequent years.

For trade, exports and imports figures are expected to fall by 8.6 per cent and 9.7 per cent respectively in 2020 but will rebound to 7.8 per cent and 9.2 per cent growth in 2021. However, this is unlikely to offset losses in the medium-term as the risk of protectionism and slowing trade growth have weighed in heavily on confidence for a sustainable recovery, said PECC.

The council also highlighted that efforts in poverty reduction and elimination have been hampered by the pandemic, leading to an exacerbation of income inequality in both advanced and developing economies within the region.

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According to the World Bank, the pandemic can potentially wipe out all poverty reduction achievements over the past five years, should the worst-case scenario materialise. A deeper discussion into social and fiscal reform is critically needed to combat these efforts adn align with APEC's goals, said PECC.

Foreign direct investment has also taken a hit and is expected to drop below US$1 trillion for the first time since 2009. The impact of widespread lockdown, demand shock and policy uncertainty have affected greenfield inestment (30 per cent drop) and cross border M&As (fell by 21 per cent). Prolonged shutdown of economic activities is likely to have a larger impact on emerging economies and are reliant on foreign inestment for industrial activity and infrastructure development.

Professor Christopher Findlay, Vice Chair, Australia PECC, said: "Given the need for growth boosting initiatives after the Covid-19 crisis, a fresh look at the role that trade integration can play in boosting growth needs to be taken. The recently signed Regional Comprehensive Economic Partnership (RCEP) agreement provides welcome momentum for trade integration."

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