EXECUTIVE SUMMARY
The Asia-Pacific expected to grow by 3.9 percent this year and 3.7 percent in 2019. These are significant downward revisions from forecasts made earlier in the year, as a result of the materialization of risks to growth, in particular trade conflicts, higher commodity prices, rising interests and volatile capital markets.
The results of PECC’s annual survey of the regional policy community largely echo current economic forecasts with the general expectation that growth will be at around the same level in 2019 as 2018, Over 42 percent of respondents expect growth to be about the same – in line with current forecasts. Of concern, however, is that the buoyancy at this time last year has dissipated. The top 5 risks to growth over the next 2-3 years were:
- Increased protectionism and trade wars
- Possible slowdown in world trade growth
- A slowdown in the Chinese economy
- Lack of political leadership
- Corruption
While it is clear that trade restricting measures have been on the rise, at the same time economies have also been undertaking liberalizing measures either unilaterally or in trade deals. This includes the conclusion of the Comprehensive and Progressive Agreement on TransPacific Partnership (CPTPP) and the ongoing negotiations on the Regional Comprehensive Economic Partnership (RCEP).
The entry into force of the CPTPP and the conclusion of the RCEP would provide a critical amount of policy certainty that would encourage businesses to invest in these markets. While forecasts for trade growth remain positive albeit at a slower pace, capital markets have demonstrated increasing volatility and bearishness.
Regional stakeholders identified the following issues as the top 5 priorities for APEC leaders’ discussions:
- Rising trade tensions and the future of the WTO and multilateral trading system
- The emergence of anti-globalization & anti-trade sentiments Progress on the APEC growth strategy to promote balanced, inclusive, sustainable, innovative and secure growth
- Progress towards the Bogor Goals and the Free Trade Area of the Asia-Pacific (FTAAP)
- Investing in human capital development in the digital age
The impact of a trade war would be to reduce global economic growth rates to between 1 to 2.5 percent, levels that would barely lift global per capita incomes. Within economies, modelling suggests that while almost all sectors of society will suffer, the impact will disproportionately fall on low to middle income earners.
Chapter 2 examines the future of work in the Asia-Pacific region. The general context we use is based on the emerging but unsettled literature on the impact of technology on work. It addresses several questions that are already asked by many people, governments and businesses, such as, (i) how is the Fourth Industrial Revolution changing the nature of work, (ii) what kinds of old jobs will disappear and what new jobs will be created, (iii) do we have the right skills in the region for these new jobs, and (iv) what will happen to those who lose their jobs?
While technology has been the driver of much of humankind’s material development over history, several pertinent factors appear to be different today, perhaps not necessarily in nature, but certainly in intensity. These include: the speed at which innovation happens; unbundling of production and the presence of global value chains; the co-existence of several new and powerful general-purpose technologies.
From the 2018 PECC survey we find that the expectations in the region are that the size of workforces will decline due to the introduction of new technologies, the level of skills required will rise and that the occupational and skills structure of the workforces will change, all in ways related to the expectations in the particular part of the region the survey respondents are located.
Respondents from both emerging and advanced economies appear to agree on the direction of change at the sectoral level. The strongest expectations that the number of jobs will increase were expressed in the following sectors: education; arts, entertainment and recreation; professional, scientific and technical activities, human health and social work activities; and information and communication.
The strongest sectors for a decline in jobs were: manufacturing; mining; and wholesale and retail trade. There was only one sector in which there was a difference in views on the direction of change – real estate. More respondents from emerging economies expect that there will be more jobs in this sector, while more from the advanced economies expect that there will be fewer jobs in that sector by 2030.
Worker displacement will create surpluses of workers and skills in some occupations and new jobs will create shortages of workers and skills in other occupations. How well the economy adjusts to technological change will depend on its capacity to match the skills on offer by all available workers (employed or looking for work) with the skills required by all jobs (vacant or filled).
The overall assessment of the preparedness to deal with the training, upskilling and possible disruption coming from new technologies is sobering and should be cause for alarm among the policy circles. Social policy, education systems and labor markets are all deemed by stakeholders as starkly unprepared for dealing with the disruptions that are likely to come. Responses between advanced and emerging economies differed only minimally.
The latest update to PECC’s index of economic integration in the Asia-Pacific region shows a rebound after two consecutive years of falling. The rebound comes mainly from growth in intraregional flows of tourists as well as greater levels of convergence in educational expenditure. The index measures the degree of integration taking place in the Asia-Pacific region based on intraregional flows of: goods; investment; tourists; and five measures of convergence: gross domestic product (GDP) per capita; share of non-agriculture to GDP; the urban resident ratio; life expectancy; and share of education expenditure in gross national income (GNI).
The index was developed in 2008 as a tool to measure the degree of integration taking place in the Asia-Pacific. Regional economic integration has become a core objective of the Asia- Pacific Economic Cooperation (APEC) forum. When APEC Leaders set out the Bogor Goals in 1994, they set out a vision through which the region would not only maintain high growth rates but also narrow development gaps. While the region has done well in integrating and overall incomes have increased at a dramatic pace, the index shows that there is a long way to go in terms of closing development gaps.
In spite of concerns over protectionism as a risk to growth and the backlash against trade and globalization in some economies, APEC continues to be seen as an important institution among stakeholders. Indeed, APEC’s enduring value may well be its nonbinding nature and as an incubator for initiatives that can be taken forward in other processes. As much as trade issues dominated concerns from stakeholders in this year’s survey, it is also clear that the impact of technological change is likely to be at the forefront of concerns over the coming years as discussed in chapter 2. Those issues should be seen as a part of a broader set of economic policy issues that require cooperation if not coordination. If regional economies are to successfully navigate the changes arising from technology and integration a much clearer focus on structural policies is badly needed.