The APEC region's economic growth is expected to have moderated for 2021, hurt in part by the emergence of new variants of COVID-19 as well as elevated inflation from the combined effect of supply shocks and strong pent-up demand.
Gross Domestic Product (GDP) expanded by 5.8 percent in 2021, lower than the earlier prediction of 6 percent, according to a newly updated report by the APEC Policy Support Unit.
"We are dealing with multiple headwinds that derail our push for recovery," said Dr Denis Hew, the APEC Policy Support Unit's director. "Adding to that, growth in APEC will remain uneven mostly due to disparities in pandemic management and vaccine coverage. China's modest economic growth is also expected to have some impact on the economic performance of the region."
The report notes that the APEC region's economic growth will continue at a moderate pace in the coming years, expanding to 4.2 percent in 2022 and 3.8 percent in 2023.
Higher inflation poses an additional challenge as it has already driven some economies to tighten monetary policy settings, which could have a dampening effect on economic activity. APEC's inflation rate doubled to an average of 3 percent in 2021 compared to 1.5 percent in 2020, thanks to higher energy and food prices.
"We expect inflation to moderate to 2.5 percent in 2022, with a further decrease to 2.3 percent by 2023," said Rhea C. Hernando, a researcher with the APEC Policy Support Unit who authored the report. "Authorities need to continue to anchor inflation expectations with clear monetary policy intentions, and this, along with the stabilization of global and supply conditions, will help bring down inflation."
The report highlights how public debt around the region has increased to around 65 percent of GDP in 2020, compared to the pre-pandemic 10-year average of 49 percent of GDP. This significant increase is led by the massive fiscal response to cushion the blow of the health and economic crisis brought by COVID-19.
"Governments are faced with the inevitable option to scale back their fiscal stimulus and shift to a more targeted and calibrated approach to continue their support to vulnerable households and viable businesses," Hernando added. "However, narrowing fiscal space and tightening monetary policy could slow down consumption and overall economic activity."
Moving forward, the report recommends that APEC economies continue to prioritize the health of the people in the region so that they can recover, reopen and rebuild.
"The message remains more or less the same; safeguard the free and rapid flow of medical supplies across borders to expand vaccination coverage. At the same time, we need to address vaccine hesitancy by focusing the information campaign on highlighting vaccine protection and correcting misinformation," Dr Hew reiterated. "In addition to this, economies need to ensure the availability of medical and essential workers as they are the key to recovery."
Thailand, the host of APEC 2022, will lead the region's effort towards charting a post-COVID-19 future for the Asia-Pacific region that is resilient, inclusive, balanced and sustainable, guided by its theme, Open. Connect. Balance. Thailand will host the first round of technical meetings this February. To view the event calendar, visit this page.
