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___________________________________________________________________________ 2018/SFOM16/006 Agenda Item: 1.4 APEC Regional Trends Analysis – Growth Surges But Uncertainty Persists Purpose: Information Submitted by: Policy Support Unit, APEC Secretariat 16th Senior Finance Officials’ Meeting Madang, Papua New Guinea 7-8 June 2018

APEC Regional Trends Analysis – Growth Surges But ...mddb.apec.org/Documents/2018/FMP/SFOM16/18_sfom16_006.pdfBroad-based economic recovery is seen as APEC surges to a 4.1% growth

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Page 1: APEC Regional Trends Analysis – Growth Surges But ...mddb.apec.org/Documents/2018/FMP/SFOM16/18_sfom16_006.pdfBroad-based economic recovery is seen as APEC surges to a 4.1% growth

___________________________________________________________________________

2018/SFOM16/006 Agenda Item: 1.4

APEC Regional Trends Analysis – Growth Surges But Uncertainty Persists

Purpose: Information

Submitted by: Policy Support Unit, APEC Secretariat

16th Senior Finance Officials’ MeetingMadang, Papua New Guinea

7-8 June 2018

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Copyright © 2017 APEC Secretariat

Emmanuel A. San Andres, Analyst

APEC Policy Support Unit

APEC Regional Trends Analysis (ARTA)Growth Surges but Uncertainty Persists

Senior Finance Officials’ Meeting

7-8 June 2018

Madang, Papua New Guinea

Copyright © 2018 APEC Secretariat

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Broad-based economic recovery is seen as

APEC surges to a 4.1% growth in 2017

• APEC grew faster at 4.1% in 2017 from 3.4% in 2016, mirroring the strength in global economic activity.

Sources: Economy sources; The Economist Economic and Financial Indicators; IMF WEO Database (October 2017); and PSU staff calculations.

Real GDP Growth Rates, year-on-year (y-o-y, in%), 2016 and 2017

-4

-2

0

2

4

6

8

Au

stra

lia

Bru

nei

Dar

uss

alam

Can

ada

Ch

ile

Ch

ina

Ho

ng

Ko

ng,

Ch

ina

Ind

on

esia

Jap

an

Ko

rea

Mal

aysi

a

Mex

ico

Ne

w Z

eal

and

Pap

ua

New

Gu

inea

Per

u

The

Ph

ilip

pin

es

Ru

ssia

Sin

gap

ore

Ch

ines

e Ta

ipei

Thai

lan

d

Un

ited

Sta

tes

Vie

t N

am

2016 2017 APEC GDP 2016 APEC GDP 2017

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Steady consumption and positive net exports

support APEC growth

• While household consumption continues to be a consistent driver of growth in the region, trade provided

a solid contribution to APEC GDP growth in 2017.

Note: Data not available for China; and Papua New Guinea.

Sources: Economy sources and PSU staff calculations

Contribution to APEC Real GDP Growth (in%), 2017

-5

0

5

10

15

20

25

30

Au

stra

lia

Bru

nei

Dar

uss

alam

Can

ada

Ch

ile

Ho

ng

Ko

ng,

Ch

ina

Ind

on

esia

Jap

an

Ko

rea

Mal

aysi

a

Mex

ico

New

Ze

alan

d

Per

u

The

Ph

ilip

pin

es

Ru

ssia

Sin

gap

ore

Ch

ines

e Ta

ipei

Thai

lan

d

Un

ited

Sta

tes

Vie

t N

am

PCE GCE GFCF Change in Stocks Net Exports GDP

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APEC growth tracks an upward trajectory on a

semi-annual basis

• APEC growth is derived largely from the ongoing global economic momentum which started in the

second half of 2016 and strengthened further in 2017.

Note: Semi-annual GDP growth is not available for Papua New Guinea.

Sources: Economy sources and PSU staff calculations

Real GDP Growth Rates, (y-o-y, in%), 1st half 2016-2nd half 2017

3.333.57

3.974.12

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

January-June 2016 July-December 2016 January-June 2017 July-December 2017

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Solid recovery in merchandise trade, both in

terms of value and volume

• Growth in the value and volume of merchandise trade increased in 2017 compared to a year ago due to

the combined effect of stronger global demand and measures to address excess supply.

Note: APEC average growth rate does not include Brunei Darussalam and Papua New Guinea due to data unavailability.

Sources: WTO for trade values; UNCTAD Statistics for trade volume; and APEC PSU staff calculations.

Value of APEC Trade (y-o-y, in%), 2016 and 2017

-3.9 -3.5

10.2

11.7

-6

-4

-2

0

2

4

6

8

10

12

14

Merchandise Exports Merchandise Imports

2016 2017

Volume of APEC Trade (y-o-y, in%), 2016 and 2017

1.41.7

4.9

7.8

0

1

2

3

4

5

6

7

8

9

Merchandise Exports Merchandise Imports

2016 2017

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Individual trade performance shows a general

reversal to growth among APEC economies

• The reversal to growth in both merchandise exports and imports in 2017 indicates renewed strength in

trade across the region.

Note: Data not available for Brunei Darussalam and Papua New Guinea.

Sources: WTO; Economy sources; and APEC PSU staff calculations.

Growth in the Value of Merchandise Exports

(y-o-y, in%), 2016 and 2017

Growth in the Value of Merchandise Imports

(y-o-y, in%), 2016 and 2017

-10

-5

0

5

10

15

20

25

30

Austr

alia

Ca

nad

a

Ch

ile

Ch

ina

Ho

ng K

on

g, C

hin

a

Indon

esia

Japa

n

Kore

a

Ma

laysia

Me

xic

o

Ne

w Z

eala

nd

Peru

The

Ph

ilip

pin

es

Ru

ssia

Sin

gapo

re

Ch

ine

se

Taip

ei

Tha

iland

Un

ite

d S

tate

s

Vie

t N

am

20162017APEC 2016 Average GrowthAPEC 2017 Average Growth

-20

-15

-10

-5

0

5

10

15

20

25

30

Austr

alia

Ca

nad

a

Ch

ile

Ch

ina

Ho

ng K

on

g, C

hin

a

Indon

esia

Japa

n

Kore

a

Ma

laysia

Me

xic

o

Ne

w Z

eala

nd

Peru

The

Ph

ilip

pin

es

Ru

ssia

Sin

gapo

re

Ch

ine

se

Taip

ei

Tha

iland

Un

ite

d S

tate

s

Vie

t N

am

2016

2017

APEC 2016 Average Growth

APEC 2017 Average Growth

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Trade in commercial services also exhibits

positive turnaround

• Growth in exports and imports of commercial services increased in 2017 compared to 2016.

Note: Semi-annual GDP growth is not available for Brunei Darussalam and Papua New Guinea.

Sources: WTO; and APEC PSU staff calculations

Growth in the Value of Commercial Services, (y-o-y, in%), 2016 and 2017

0.7 0.9

5.65.9

0

1

2

3

4

5

6

7

Exports of Commercial Services Imports of Commercial Services

2016 2017

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Economic strength is mirrored in industrial

production in the APEC region

• Industrial production remains generally strong in line with prevailing economic activity.

Note: Data coverage varies, but mostly as of Feb 2018.

Sources: Economy sources and The Economist Economic and Financial Indicators, accessed as of 10 April 2018

Industrial Production Index, latest available data

-10 -5 0 5 10 15 20 25 30

Australia

Canada

Chile

China

Hong Kong, China

Indonesia

Japan

Korea

Malaysia

Mexico

New Zealand

Peru

The Philippines

Russia

Singapore

Chinese Taipei

Thailand

United States

Viet Nam

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As economic growth and trade post significant

increases, global FDI declines

• Preliminary data from UNCTAD revealed a 16.3-percent drop in global FDI inflows in 2017 to USD 1.52

trillion from USD 1.81 trillion in 2016.

• The bulk of the decline was attributed to the 27-percent fall in FDI flows to developed economies even as

inflows to developing economies increased slightly by 2.4 percent.

Source: UNCTAD Investment Monitor, January 2018.

Inflows of Foreign Direct Investments (FDI), (value in billion USD), 2016-2017

1814

1109

638

67

1518

810

653

55

0

200

400

600

800

1000

1200

1400

1600

1800

2000

World Developed Economies Developing Economies Transition Economies

2016 2017

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Value of announced greenfield investments

declines markedly in 2017

• The 32-percent decline in 2017 from the 2016 level is cause for concern because greenfield investments

are good indicators of investors’ optimism about medium-term economic prospects since such projects

require transfer of resources, equipment, technology, and skills from the investor to the economy.

Source: UNCTAD Investment Monitor, January 2018.

Value of Announced Greenfield Investments (value in billion USD, y-o-y growth in %), 2016 and 2017

-60

-50

-40

-30

-20

-10

0

10

20

0

100

200

300

400

500

600

700

800

900

World Developed Economies Developing Economies Transition Economies

2016 2017 2017 y-o-y growth rate

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Half of the top 10 FDI recipients in 2017 are

APEC economies

• Taken together, FDI inflows to the top APEC hosts amounted to USD 658 billion, equivalent to 43 percent

of global FDI in 2017.

Top 10 FDI hosts (value in billion USD), 2016 (left graph) and 2017 (right graph)

391

254

134

108

92

62

59

48

44

38

0 100 200 300 400 500

United States

United Kingdom

China

Hong Kong, China

Netherlands

Singapore

Brazil

Australia

India

Russia

311

144

85

68

66

60

60

58

50

45

0 50 100 150 200 250 300 350

United States

China

Hong Kong, China

Netherlands

Ireland

Australia

Brazil

Singapore

France

India

Source: UNCTAD Investment Monitor, January 2018.

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APEC region is expected to continue along the

path of high economic growth in the near-term

• The APEC region is seen to continue to benefit from the positive feedback loop of:

increased strength in global economic activity → higher demand + increased consumer and

business confidence→ stronger consumption, investment, and trade activity.

Source: UNCTAD Investment Monitor, January 2018.

Short-term GDP Growth Projections (in %), 2018-2019

3.8 3.9 3.94.1 4.1 4.0

3.5 3.6 3.8

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

2017 (actual) 2018f 2019f

World APEC Rest of the World

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But uncertainty could tilt risks to the downside

in the medium term

• Risks are broadly balanced in the short-term: Downside risks relate mostly to policy missteps that could dampen confidence and

spending.

Key upside potential could come from a stronger-than-expected global economic

activity

Trade volume is expected to grow at a robust pace

• In the medium term, risks are tilted to the downside due to policy

uncertainty: Uncertainty in monetary, fiscal, and trade policies could dampen growth.

Financial market volatilities.

• Other factors: UK-EU relationship post-Brexit;

Ongoing geo-political tensions;

Terrorist attacks; and

Adverse weather conditions

Source: UNCTAD Investment Monitor, January 2018.

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Trade protectionism and related tensions could

diminish current gains

• As of the latest WTO-OECD-UNCTAD monitoring reports on trade and investment measures:

Trade-restrictive measures outnumbered trade-facilitating measures

Investment-friendly measures outnumbered investment-restrictive measures

Trade Measures (as % of total)

31

52

4138

69

48

5962

0

10

20

30

40

50

60

70

80

mid-Oct 2015 tomid-May 2016

mid-May 2016 tomid-Oct 2016

mid-Oct 2016 tomid-May 2017

mid-May to mid-Oct 2017

Trade-facilitating measures Trade-restrictive measures

79

71

36

58

21

29

64

42

0

10

20

30

40

50

60

70

80

90

mid-Oct 2015 tomid-May 2016

mid-May 2016 tomid-Oct 2016

mid-Oct 2016 tomid-May 2017

mid-May to mid-Oct 2017

Investment-facilitating measures Investment-restrictive measures

Investment Measures (as % of total)

Note: Only nine of the 21 APEC member-economies belong to the G-20, including: Australia; Canada; China; Indonesia; Japan; Korea; Mexico; Russia; and the United States.

Sources: WTO Monitoring Report on G20 Measures; and UNCTAD-OECD Report on G20 Investment Measures

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Global commodity prices are expected to trend

upwards in the near-term

• Stronger global demand and measures to curb excess supply have raised global commodity prices.

• In APEC, inflation averaged higher at 2.4% in 2017 from 2.1% in 2016.

• Commodity prices are expected to inch higher in the short-term in line with continued strength in the

global economy.

Commodity Price Indices (in real terms) APEC Average Inflation Rate

Sources: World Bank Commodity Markets for the commodity price indices; economy sources, the IMF WEO Database (October 2017), and PSU staff calculations for the APEC average inflation rate.

0

1

2

3

4

5

6

7

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

0

20

40

60

80

100

120

140

2010 2011 2012 2013 2014 2015 2016 2017

Energy Non-energy Agriculture Food Metals

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Monetary policy: a delicate balance between

supporting growth and managing inflation

• As of mid-April 2018, monetary policy decisions across APEC have been largely neutral.

• The US monetary policy rate increased anew in March 2018, with clear signals of a gradual tightening in

view of a stronger US economy.

• Rising inflation combined with higher US interest rates could prompt a similar policy rate increase across

the world, which could impact on the ongoing global economic momentum.

Monetary Policy Rates (in %)

Note: Of the 21 APEC members, only 17 use interest rates as monetary policy instruments. Brunei Darussalam and Hong Kong, China maintain a currency board system; Japan uses a monetary base;

and Singapore uses an exchange rate policy band

0

2

4

6

8

10

12

Austr

alia

Cana

da

Ch

ile

Chin

a

Ind

one

sia

Kore

a

Ma

laysia

Me

xic

o

New

Ze

ala

nd

Pap

ua N

ew

Guin

ea

Peru

Th

e P

hili

ppin

es

Russia

Ch

inese

Taip

ei

Th

aila

nd

United

Sta

tes

Vie

t N

am

end-2016 end-2017 as of March-mid April 2018

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Current buoyant economic conditions could be

sustained with parallel structural reform efforts

• Structural reforms that help promote and sustain trade and

investments by:

improving connectivity and bridging infrastructure gaps;

responding to challenges posed by the digital economy; and

increasing participation of all segments of society in well-

functioning, transparent and competitive markets.

• APEC is equipped with strategies and roadmaps towards

meaningful reforms that promote trade and investment, and

lead to sustainable and inclusive growth:

APEC Connectivity Blueprint 2015-2025;

Renewed APEC Agenda on Structural Reform (RAASR)

2016-2020; and the

APEC Framework on Human Resources Development in the

Digital Age.

• In 2020, a review of APEC’s achievements vis-à-vis the Bogor

Goals and RAASR commitments will be conducted. The

APEC Vision Group will help determine the role of APEC

post-2020.

Source: UNCTAD Investment Monitor, January 2018.

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Trade, Policy, and the Pursuit of Inclusion

• APEC Leaders have called for more inclusion in the

region 2016 APEC Leaders Statement: benefits of trade and globalization

should be spread more equally

2017 APEC Action Agenda on Economic, Financial, and Social

Inclusion: inclusive APEC community by 2030

• Inclusion is often cited as a reason for protectionism Increase production at home

Protect local firms and industries

Protect jobs and raise workers’ income

“Bring back” jobs that were outsourced

Source: UNCTAD Investment Monitor, January 2018.

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Trade, Policy, and the Pursuit of Inclusion

• Trade and globalisation can have

negative impacts Reduced employment in import-

competing sectors

Offshoring and automation

Declining labour share in GDP

• But protectionism is not

inclusion Imports are not negatively

correlated with employment at the

macro level

Good for jobs in protected industry;

bad for jobs elsewhere

Impacts: jobs losses and lower real

wages in non-protected sectors;

lower overall economic growth

Source: UNCTAD Investment Monitor, January 2018.

10

12

14

16

18

20

log

of nu

mbe

r e

mplo

ye

d

18 20 22 24 26 28log of real imports

bandwidth = .8

Imports and employment, 1991–2016

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Trade, Policy, and the Pursuit of Inclusion

• What is inclusion? Everyone contributes; everyone benefits

Need to address factors that prevent people from developing their

capabilities and accessing economic opportunities

• What contributes to inclusion? Access to human capital development: skills, health

Access to opportunities: infrastructure, financial inclusion

Social inclusion policies: labour policies, social protection, fiscal

policies

Trade and regional integration: expand the set of available

opportunities

Source: UNCTAD Investment Monitor, January 2018.

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Trade, Policy, and the Pursuit of Inclusion

• Addressing inclusion in trade

Trade adjustment policies: addressing behind-the-border issues

Labour standards: avoid a race to the bottom in wages and working

conditions; application of ILO labour standards

Environment: poor households are more vulnerable to, and less

able to cope with, the impacts of environmental damage and extreme

weather

Gender: non-discrimination and support for women workers

Minorities: promote greater involvement of indigenous groups and

minorities in trade

MSMEs: improving access to finance and fostering the use of e-

commerce

Source: UNCTAD Investment Monitor, January 2018.

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Trade, Policy, and the Pursuit of Inclusion

• Policy pronouncements are good, but implementation is

better

Targeting and focusing of efforts

Complementarity of policies

Monitoring and evaluation

Accounting for local contexts

Sustainability

Source: UNCTAD Investment Monitor, January 2018.

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