Inequitable vaccine distribution, climate change and inflation possible growth risks for Asia Pacific's economic recovery: Report

EVEN as Asia-Pacific is set for a "sharp recovery" thanks to unprecedented policy support and the accelerated distribution and adoption of vaccinations, stakeholders remain deeply concerned about the impact fragmented travel rules will have on the recovery of their economies, according to the sixteenth State of the Region report.

According to the report by the Pacific Economic Cooperation Council (PECC), economies with current vaccination rates above 30 per cent are expected to recover from the pandemic at a faster pace and grow by 6.3 per cent in 2021, compared to 5.4 per cent for those with vaccination rates below 30 per cent. The recovery is expected to become more broad-based across the region as vaccines become more widely available in 2022.

Overall, the region is expected to grow by 6.1 per cent in 2021 and 5.1 per cent in 2022.

"Thanks to the advent and rapid distribution of Covid-19 vaccines, many economies are finally positioned well for recovery after yet another challenging year dealing with an unprecedented pandemic. However, our survey indicates that stakeholders are deeply concerned about the impact that fragmented travel rules are having on the recovery of their economies. This is especially evident for essential workers keeping supply chains running such as aircrews and sea crews," said Eduardo Pedrosa, secretary general, PECC.

The report noted that the high priority given to "the safe international movement of people starting with those involved in logistics and supply chains" may be because of the high cost of international freight associated with the constraints in the industry and the need for dealing with the frictions in the system.

As part of the report, 598 respondents from the regional policy community was surveyed, to provide a representation of the insights from key political and business decision-makers.

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In terms of priorities for Asia-Pacific Economic Cooperation (Apec) forum leaders, these respondents identified ensuring equitable and affordable access to Covid-19 vaccines as a leading concern, followed by plans for economies to open up their borders for travel and managing the ongoing US-China trade conflict.

In identifying top risks to growth, respondents identified future waves of Covid, climate change, and increased protectionism and trade wars.

Climate change was, specifically, in addition to being the second highest risk to growth, identified as being a top five priority for Apec leaders' discussions.

Almost half of the respondents (43 per cent) selected it as a top five growth risk for their economies, a substantial increase from the previous year when only 24 per cent selected this option as a top growth risk for their economy.

Six in 10 said "immediate and drastic action is necessary to address climate change" with a further 30 per cent saying that some action should be taken now.

Tilak Doshi, economic consultant and co-author of the State of the Region for 2021-2022, said: "Apec member economies can play a significant and constructive role in the outcome of the COP26 negotiations. Apec's Putrajaya vision of 'an open, dynamic, resilient and peaceful Asia-Pacific community by 2040' can be the basis to find ways to support the Paris Agreement by assisting governments in implementing their emission mitigation and adaptation efforts through voluntary international cooperation.

"Such voluntary international cooperation can assure developing Apec member economies, along with other developing economies, energy security, reliability and affordability, which are requisite for their economic development and poverty alleviation objectives."

He further noted that significant achievements in establishing region-wide carbon markets in the region which can have linkages with existing carbon markets in Europe and North America are within reach and that Apec member economies would gain mutual benefits from such arrangements.

"Carbon mitigation and adaptation projects jointly implemented between Apec's developed and developing economies could demonstrate the value of such projects beyond the Apec region," he added.

The report also identified the emergence of inflationary pressures as a situation that needs to be "watched carefully".

Overall, inflation was the seventh highest risk in survey, but for business respondents it was the fifth highest risk to growth.

"There is some debate over the nature of the current inflationary pressures - whether there is a risk of 'jumping at shadows'," stated the report.

Underlying the difficulty in reaching any conclusion is that there remains significant capacity in the economy and the solution coming from fixing supply and relaxing restrictions on the movement of people as and when health circumstances permit, it added.

The State of the Region report was released on Nov 8 at the sidelines of the Economic Leaders and Ministers' meetings, hosted by the Asia-Pacific Economic Cooperation in New Zealand.