Financial crisis still weighs on Asia-Pac trade

[SINGAPORE] While Asia-Pacific may be home to some of the world's most dynamic economies, growth in trade and investment flows has yet to return to levels seen prior to the 2008-2009 global financial crisis, a new United Nations report released on Wednesday said.

According to the Asia-Pacific Trade and Investment Report (APTIR) 2014 published by the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), the developments in 2013 and so far in 2014, continue to show that the prolonged consequence of the global 2008 financial crisis is still posing risks to the trade prospects of Asia and the Pacific.

The growth of merchandise trade by developing Asia-Pacific economies is expected to continue to be slow-paced for the rest of 2014, with average export growth of 5 per cent in real terms. This growth is expected to range from a low of 2 per cent for the Russian Federation to a high of 7 per cent for Singapore and the Philippines.

The report showed total exports and imports from the region grew by only 2 per cent in 2013 and were weak in the first half of 2014.

But despite significant uncertainties, Asia-Pacific exports are expected to improve in 2015 to reach a growth rate of 7 per cent in real terms. This, however, hinges on several factors including the recovery of the US economy, risks of a Chinese economic hard-landing and geo-political tensions regionally and globally.

"As the region is evidently not immune to the global economic uncertainties, the need to focus on long-term strategies to increase competitiveness has never been greater, Shamshad Akhtar, United Nations under-secretary-general and ESCAP executive secretary, said.

There is a need for economic rebalancing and refocusing on domestic value addition of exports, rather than increasing gross exports alone.

"In the globalisation of production, failure to distinguish between gross exports and domestic value-added in exports can lead to misguided trade and industrial policies," he warned.

"Regional economies also need to diversify away from dependence on traditional sources of export-demand in Europe and the United States, developing domestic demand and better integrating with other regional economies," added Dr Akhtar, while noting that more than half of the regional exports are now directed to other Asia-Pacific countries.

The report showed that concentrations of exports and imports remain uneven across the region. East and North-east Asia alone accounted for about 60 per cent of both total regional merchandise exports and imports in 2013. About 65 per cent of all services exports from the Asia-Pacific region are attributable to just six economies: China, India, Japan, South Korea, Singapore and Hong Kong.

"This implies that large gaps remain between countries in terms of their trade competitiveness and level of diversification, and that great potential remains still untapped, especially in the services sectors of many countries," the report said.

In 2013, Asia-Pacific attracted US$549 billion of foreign direct investment (FDI), a rise of 6.6 per cent, accounting for almost 38 per cent of global inflows, but this was still lower than the global increase and lagged behind other fast-growing regions such as Latin America.

Intra-regional FDIs inflows through mergers and acquisitions totalled more than US$153 billion, accounting for almost one third of total regional FDI inflows last year, and also flowing to a diverse range of destinations.

In 2013, Singapore experienced a rise in FDI inflows, with an increase of 4.3 per cent to US$63 billion. This continues the moderate growth notable since 2011. Further, FDI outflows increased by 100 per cent to US$27 billion in 2013.

The largest sources of FDI in Singapore were Luxembourg and the United States, which accounted for 9 per cent of total FDI inflows each, followed by the United Kingdom with 7 per cent. In terms of outward investment, companies from Singapore invest mainly in Indonesia and China, with 29 per cent and 24 per cent of outward FDI going to those destinations, respectively.

The report also noted that Singapore has more than 20 trade agreements in force, which is above the regional average of 7.2. Sixty-eight per cent of its total exports are to preferential trade agreement (PTA) partners, while the average figure for the Asia-Pacific is 38 per cent. Seventy-four per cent of imports are from PTA partners, higher than the regional average of 45 per cent.