As leaders from 21 member economies of the Asia-Pacific Economic Cooperation (APEC) meet for their 17th informal meeting this week in Singapore, they may have to face with the fact that the global economy may not go back to where it was prior to the crisis and consider a recalibration of the growth drivers in a new global environment of softer consumers' demand.

 

A subdued recovery lying ahead

In the backdrop of an expanding global economy and improving financial condition compared with one year ago at the APEC economic leaders' meeting in Lima, Peru, when the financial crisis sent shockwaves throughout the world economy and took a devastating toll on the global financial system, many may find it easy to get optimistic over recent "green shoots" of economic recovery triggered by the rapid and comprehensive public policy response to tackle the financial crisis.

However, economists warned the world may see a sluggish growth in the next few years.

According to the latest World Economic Outlook released by the International Monetary Fund in October, the world economy is projected to contract by 1.1 percent in 2009, the first drop since1945. Growth is forecast to turn positive in 2010, with a 3.1 percent expansion, which is still well below the rates achieved before the financial crisis.

"The main short-term risk is that the recovery will stall," the WEO said, adding that the policy forces that are driving the current rebound will gradually lose strength, with consumption and investment gaining strength only slowly.

In essence, the problem is that private demand remains "hobbled."

"The global economy may not go back to yesterday, and the world has to change," Frank Gong, a JP Morgan economist, said in an interview with Xinhua.

He warned there was a risk of credit constrains and weak demand derailing the recovery in the next few years despite the rebound in 2010 triggered by public policies across the developed and developing economies.

Consequently, the developed economies' consumption is likely to remain weak for some time, limiting external demand for some developing economies' products, especially those in the Asia-Pacific region where a number of export-driven economies have been hard hit by the financial crisis.

Structural reform in a post-crisis era

As the global economic outlook remained uncertain in the longer run, the topic of structural reform and rebalance of the economy has drawn much attention across the developed and developing economies in the Asia-Pacific region.

As in the case of the developing economies, the financial crisis has taken a toll on the household balance sheet and resulted in a household deleveraging, as measured by the ratio of debt to personal disposable income. Among them, the US consumers are undergoing a drastic process of debt reduction and saving increase.

According to the latest data released by the US Commerce Department in September, as a share of US GDP, the current-account deficit decreased to 2.8 percent, from a peak of 6.5 percent of GDP prior to the financial crisis.

"The rebuilt American economy must be more export-oriented and less consumption-oriented," said Larry Summers, the US president Barack Obama's chief economic advisor, in a speech this year, laying out a plan for a restructured US economy.

Meanwhile, some developing countries, including China, are making efforts to spur domestic demand and become less export-dependent.

However, along with the trendy structural change and rebalance of the economy, trade tensions and protectionism are on the rise in some developed economies, which, as warned by some analysts, will bring harm to both sides in the long run and protract the suffering of the whole world in the process of economic recovery.

Therefore, one of the major challenges facing the APEC economies, as shown by the theme of this year's Singapore meeting" sustaining growth, connecting the region," shall be how to recalibrate the drivers of growth and devise a way to return to sustained, rapid growth in a new global environment, while enhancing cooperation and coordination and resisting the temptation for protectionism, said analysts.

Re-positioning asia-pacific for new growth paradigm

The APEC economies have already shown a high concern over those issues and are expected to discuss the topic further in the APEC economic leaders' meeting to be held this week.

As pointed out by Lim Hng Kiang, Singapore minister of trade and industry, in a speech last month, the issue of how to re-position the Asia-Pacific economies for new growth paradigms has been a preoccupation in the APEC meetings that Singapore has been chairing this year.

"It will occupy our leaders' minds when they gather in Singapore for the summit. It cannot be 'growth-as-usual' going forward," said Lim.

A draft declaration, prepared by officials for ministerial review ahead of the summit this week, said the APEC economies will work out a long-term growth strategy that supports inclusive and sustainable growth, which recognises "the structural reform" as the cornerstone of inclusive growth and focuses on boosting opportunities for all segments of society and strengthening social resilience through well designed social safety nets.

"We will strengthen APEC's focus on its structural reform agenda as a matter of urgency," said the draft declaration seen by Xinhua, stressing that the progress on structural reform will be critical for ensuring a sustained recovery in APEC economies from the global economic crisis.

(Xinhua News Agency November 10, 2009)