APEC Finance Ministerial Meeting
Session 1 - Global and Regional Economic and Financial Outlook
Remarks by Angel Gurría,
Lima, Peru, 15 October 2016
(As prepared for delivery)
Ministers and colleagues,
In our recent Interim Economic Outlook, we forecast global GDP growth to remain flat at around 3% this year. This will be the fifth year in a row of global growth well below historical averages of around 4%. We expect only a slight increase to 3.2% in 2017.
That is, for the global economy to remain caught in the “low growth” trap – a vicious circle whereby very slow productivity gains and sluggish demand are feeding each other.
Much of Asia and the Pacific continues to outpace the rest of the world economy. In the last two decades, the economic performance of the region has been remarkable. Per capita income rose by 45 per cent between 1997 and 2014, lifting millions out of poverty.
Trade has been the engine of this dynamic performance and APEC has played an important role in promoting regional integration, reducing barriers to trade at borders and cutting average tariffs from 17 per cent in 1989 to 5.6 per cent in 2014. As a result, the region’s total trade increased over seven times, with two-thirds of this trade occurring between member economies.
But there are signs that this crucial engine of growth is sputtering. World trade has grown very slowly since the crisis and actually fell in the first half of 2016. The recent trade slowdown centres on this region, particularly trade-intensive Asia, with the ongoing slowdown and rebalancing in China having a significant impact.
More worryingly, recent OECD research suggests that the development of global value chains – a key driver of productivity, living standards and inclusive growth, is now going into reverse. The imposition of new trade protectionist measures in many economies since the crisis and lack of progress on new ground-breaking multilateral and regional trade initiatives is also contributing to the trade slowdown.
As a result, and despite past performance, the Asia Pacific is not immune from the global “low growth trap”. Slow productivity gains in many countries in the APEC region remains a key challenge. Latin America’s labour productivity has dropped from more than 40% of that of the US in the 80’s to a mere 30% nowadays. The opposite trend has been observed across Asia, including China, where labour productivity is now higher than the average of the Latin American region.
Trade and structural policies in APEC economies have significant potential to reinvigorate trade growth and bolster productivity.
This means addressing long-standing barriers at the border. Sixteen APEC members have ratified the Trade Facilitation Agreement – the challenge is now for the rest to ratify, and for all to implement! OECD analysis shows that the TFA could reduce trade costs in APEC by 14% on average, helping your businesses stay competitive in regional and global markets. The traditional APEC agenda towards free and open trade and investment, including the APEC Services Cooperation Framework that focuses on behind the border regulatory measures, needs to be advanced. Regional agreements like the TPP, RCEP and ASEAN can also help realise the faster trade growth of the two decades before the crisis.
In parallel to these efforts, in order to generate more inclusive growth and boost productivity, policymakers must accompany trade and investment openness with appropriate domestic structural reforms as a comprehensive package. Indeed, we need to make trade work for people! This means social protection for workers in transition, investing more in people – their education and skills – promoting competition and firm entry, well-functioning financial markets, clear and transparent institutions and rule of law, and policies aimed at reducing informality. It also means addressing restrictions on the flow of data and ideas – the digital economy offers exciting new opportunities, not least for small, innovative and often younger firms.
While many reforms in these areas have been undertaken by economies in Asia and the Pacific, there is more to do.
On the other hand, greater public spending, notably in infrastructure, made possible by historically low interest rates, would also help to promote trade, support growth and facilitate the implementation of structural reforms.
This more intensive use of structural, trade and fiscal policies would ease the burden on monetary policy and reduce financial risks, in addition to lifting global growth and promoting inclusiveness.