Gwen Robinson – FT.com
Slowing growth, falling exports, the impact on Asia of the eurozone debt crisis and a potential surge in oil prices: there were some stark warnings issued on Thursday by the United Nations’ Economic and Social Commission for Asia and the Pacific.
A eurozone debt default could cut Asia-Pacific exports by $390bn in 2012-13, according to Noeleen Heyzer, UN under-secretary general and executive secretary of Escap, at the Bangkok launch of Escap’s 2012 regional economic and social survey. A gloomy report, but there were a few positive notes to be found.
One threat was the possibility of a “sharp and sustained increase” in oil prices due to non-economic factors including political instability in oil-producing countries. Steps by developed countries, meanwhile, to shore up their own economies via liquidity injections to the financial markets could increase the risk of asset bubbles and exchange rate appreciation, Heyzer said.
Such factors could hasten a decline in the region’s exports that is already likely to knock 1.3 percentage points off regional growth this year compared to 2011, according to Escap.
While slower growth could help moderate inflation, Escap estimated that a $25 increase in already high oil prices over an extended period could push up inflation by at least 1.3 percentage points in the region’s developing economies. The mixed impact of commodity price volatility, the survey added, is another concern for the region, which faces a long-term trend of rising commodity prices.
An additional risk stems from likely moves by developed economies to revive growth – particularly liquidity injections into the financial markets. “This will expose developing Asia-Pacific economies to risk of asset market bubbles, exchange rate appreciation and inflationary pressures,” Escap said. Similarly, added Heyzer, various trade restriction measures by developed countries to protect their economies “raises the spectre of retaliatory escalation and possible trade wars”.
The Escap report stressed the need for a successful outcome to the Doha development-round talks at the World Trade Organisation to promote freer trade. But private sector economists have expressed doubt that agreement could be reached in the short term.
Heyzer also warned of the impact of increased capital flows to the region and said Escap had proposed selective capital controls in developing countries “to attract long-term capital rather than short-term”. Indonesia and several other countries in the region had already instituted such policies, she added.
Despite the broad range of economic concerns, the Escap report concluded the Asia-Pacific region would remain the world’s fastest growing, with China forecast to grow at 8.6 per cent this year, down from 9.2 per cent in 2011. Growth in India meanwhile is projected at 7.5 per cent in 2012, up from 6.9 per cent in the last fiscal year.
The overall growth rate of the region’s developing economies will slow to 6.5 per cent in 2012 from 7.0 per cent last year, against a strong 8.9 per cent in 2010, according to Escap. Bar a surge in oil prices, however, the growth slowdown will help lower inflation in the region, which is projected to moderate from 6.1 per cent in 2011 to 4.8 per cent this year.
Gwen Robinson writes in the FT.com about the stark warnings issued on Thursday by the United Nations’ Economic and Social Commission for Asia and the Pacific.