APEC Regional Trends Analysis: Growth Proceeds As Uncertainty Increases

Transcription

1 2017/SOM1/EC/004 Agenda Item: 7a APEC Regional Trends Analysis: Growth Proceeds As Uncertainty Increases Purpose: Information Submitted by: Policy Support Unit, APEC Secretariat First Economic Committee Meeting Nha Trang, Viet Nam February 2017

2 APEC Regional Trends Analysis (ARTA): Growth proceeds as uncertainty increases APEC Economic Committee (EC1) February 2017 Nha Trang, Viet Nam Presented by Denis Hew, Director APEC Policy Support Unit Copyright 2015 APEC Secretariat APEC continues to grow amid uncertainties The APEC region continued along the path of growth with weighted GDP growth at 3.5 percent in Q3 2016, the same as in Q3 2015, and higher than the previous quarter s growth of 3.4 percent Australia Brunei Darussalam Canada GDP Growth Rates, year-on-year (y-o-y), Q and Q Chile Q Q Q APEC GDP Q APEC GDP Hong Kong, Indonesia Japan Korea Malaysia Note: Data not available for Papua New Guinea. Sources: Asian Development Bank (ADB), International Financial Statistics (IFS), the World Bank (WB), The Economist Economic and Financial Indicators, various economy sources, and APEC PSU staff calculations. Mexico New Zealand Peru The Philippines Russia Singapore Chinese Taipei Thailand United States Viet Nam 1

3 Solid domestic consumption buoys growth Private consumption and government spending remained as the bright spots that have propped up growth even as weakness in global trade persisted. 30 GDP by Expenditure (y-o-y, in percent), Q Personal Consumption Gross Fixed Capital Formation Government Consumption Exports of Goods and Services -40 Australia Brunei Darussalam Canada Chile Hong Kong, Indonesia Japan Korea Malaysia Mexico New Zealand Peru The Philippines Singapore Chinese Taipei Thailand United States Note: Data on quarterly GDP by expenditure are not available Papua New Guinea; and Russia. Missing bar denotes either unavailability of data or near-zero/zero growth rates. Source: Statistics Offices and Central Banks of APEC member-economies Viet Nam Trade remains lethargic On average, the APEC region s merchandise trade values contracted by 6.4% for exports and 6.6% for imports in Jan-Sep 2016 compared to Jan-Sep Australia Growth in Merchandise Trade Values (y-o-y, in percent), January-September 2016 Brunei Darussalam Canada Exports APEC Average Exports Chile Hong Kong, Indonesia Japan Note: Data not available for Papua New Guinea Source: World Trade Organization (WTO), Brunei Darussalam Economic Planning and Development Office, and APEC PSU staff calculations. Korea Imports APEC Average Imports Malaysia Mexico New Zealand Peru The Philippines Russia Singapore Chinese Taipei Thailand United States Viet Nam 2

4 APEC is the largest recipient of FDI In 2015, the APEC region attracted USD 953 billion worth of FDI, equivalent to a around 54.1 percent of world FDI and a growth of 42.3% from the 2014 level. FDI Flows (in billion US dollars) and APEC Share of World FDI (rhs, in %), APEC FDI outflows APEC Share of the world (rhs) Source: UNCTAD World Investment Report 2016 APEC economies comprise the top 10 recipients of FDI in 2016 Estimated FDI inflows show that five APEC members comprise the top 10 host economies in 2016, along with the UK; Brazil; France; Netherlands; and India. United States Estimated FDI inflows (in billion USD): Top host economies, Hong Kong, 92 Singapore 50 Australia 44 Source: UNCTAD Global Investment Trends Monitor (1 February 2017) 3

5 Estimated FDI inflows in 2016 show mixed developments for some APEC economies Upward movers: The United States remained the largest recipient of FDI in remained robust, with a 2.3 percent increase in FDI inflows and a new record in Korea s FDI inflows was higher by more than a hundred-fold at US$ 9.4 billion in 2016 from the year-ago level of US$ 4.0 billion. Russia recorded a 62-percent rise in FDI inflows to US$ 19 billion in 2016 from US$ 12 billion in Japan posted inflows of US$16 billion in 2016 from a net divestment of US$ 2 billion in Australia s FDI inflows more than doubled in Downward movers: Inflows to Hong Kong, ; and Singapore fell in absolute terms, although they belong to the top 10 host economies in Thailand s inflows declined in Chile s inflows were lower by 31 percent to US$ 11 billion in 2016 from US$ 16 billion a year ago. Mexico experienced a 21-percent reduction in FDI inflows to US$ 26 billion in 2016 from US$ 33 billion in FDI trends point to a potential rebound in 2017 Highlights on the FDI 2017 outlook from UNCTAD s Global Investment Trends Monitor (February 2017) Following an estimated decline of 13 percent in global FDI flows in 2016, a modest recovery is expected in 2017 with a 10 percent rise in FDI flows. The potential rebound in 2017 is hinged on the following projections: A higher trajectory for world economic growth in 2017; Increased global trade volumes; and A rise in commodity prices. But, significant uncertainties related to the US monetary policy, the near-term economic policies worldwide, the shape and direction of trade agreements, and election-related developments across Europe, could impact on the scale of FDI recovery in

6 Short-term outlook points to a dip in growth in 2016, and a higher, more stable growth in GDP Growth 2015 (actual) 2016(f) 2017(f) 2018(f) 2019(f) APEC World (IMF) World (WB) APEC World (IMF) World (WB) APEC is expected to grow by 3.3 percent in 2016, lower than its 2015 GDP growth, but higher than projected world growth. Economic outlook for points to a higher growth trajectory for APEC at 3.6 percent, inching up to 3.7 percent in 2019, generally apace with world economic activity Source: IMF, WB, and PSU staff calculations (actual) 2016(f) 2017(f) 2018(f) 2019(f) Downside risks and upside opportunities determine direction and magnitude of growth ahead Downside risks Policy uncertainties in various economies associated with political transition, which could impact on their trade partners in the APEC region. Growing divergence on views about economic integration and globalization, which could influence trade and investment policies of individual economies. Higher-than-expected increase in US monetary policy rates which could result in higher foreign debts, tighter credit conditions, and capital flight from economies perceived as risky by investors. 5

7 Downside risks and upside potential determine the direction and magnitude of growth ahead Industrial production is generally improving with more APEC economies exhibiting growth. Australia Brunei Darussalam Canada Chile Hong Kong, Indonesia Japan Korea Malaysia Mexico New Zealand Peru The Philippines Russia Singapore Chinese Taipei Thailand United States Viet Nam Upside opportunities Sources: The Economist Economic and Financial Indicators and Statistics Offices of APEC economies for industrial production growth; IMF for commodity prices Commodity prices are recovering, which bodes well for global export activity All commodities Food Dec-15 Beverage Industrial inputs Dec-16 Agri raw materials Metals Energy Crude oil Policy reforms boost medium-term growth prospects and fortify resilience against shocks Structural reforms that promote innovation, lead to more competitive markets, and facilitates participation of all segments of society could contribute significantly to economic development. Allocating resources for infrastructure could improve connectivity and help facilitate trade and investment flows. Investing in human capital could bride gaps in skills and education while also addressing vulnerabilities. 6

8 Scatterplots of real per capita GDP and digital technology use, Log of real per capita GDP Mobile cellular subscriptions (per 100 people) bandwidth =.8 Log of real per capita GDP Fixed (wired) broadband subscriptions (per 100 people) bandwidth =.8 A higher rate of digital technology use is correlated with per capita GDP. A plausible explanation is that digital technology increases GDP through its impact on consumption and production, while a higher income also increases firms and households access to digital technology. Note: Fitted curves are generated using nonparametric locally weighted scatterplot smoothing (LOWESS). Source: World Bank, World Development Indicators and Directorate-General for Budget, Accounting and Statistics (Chinese Taipei). Linkages between digital technology and employment are unclear. Correlations between digital use and GDP are positive and significant, while correlations for number of employed workers are insignificant. While these findings are preliminary, they could indicate opposing effects. Correlations between GDP/employment and digital technology use in APEC Real GDP Employed workers (1) (2) (3) (4) Mobile cellular subscriptions 0.006** Fixed broadband subscriptions 0.005*** Lagged real GDP 0.936*** 0.951*** Real GDP (in 2005 USD) 0.261* 0.300** Constant 1.622*** 1.284*** 9.458*** 8.649** Observations R-squared Source: World Bank, World Development Indicators; Directorate-General for Budget, Accounting and Statistics (Chinese Taipei); and APEC PSU staff calculations. 7

9 Jobs Lost Automation: jobs that once hired a worker are now done by computers or robots; 47% of US jobs are at risk (Frey and Osborne 2013). Vulnerable workers are those who do routine tasks that require simple cognitive and manual activities following explicit rules and codes, such as factory assembly, transcription, or simple accounting or data collection. Jobs polarisation: routine mid-skilled work are being lost, while remaining jobs are at low- and high-end of skills spectrum. Middle-wage/middle-skill jobs are routine enough to be developed into an algorithm, but valuable enough for firms to invest in their automation. Empirical evidence that job polarisation is already happening in Europe and the US (Eurofund 2014; Autor and Dorn 2013). Jobs Created Technology leads to the creation of new jobs and opportunities; many jobs today did not exist 10 years ago (e.g., app developer, social media manager, digital marketing specialist, data scientist). WEF (2016): the most in-demand occupations today did not exist five to 10 years ago; predicts that 65% of children joining primary school today would be working in jobs which do not exist yet. While automation takes over some jobs, it also frees up labour to focus on other activities, potentially increasing wages and productivity; market expansion could also increase labour demand (e.g., ATMs and demand for bank tellers). Digital technology improves coordination, opens up opportunities for freelance work, and creates new markets (e.g., Uber, Go-jek, Upwork, Airbnb). 8

10 Cognitive Skills needed in a modern economy literacy, numeracy, and cognitive skills Problem-solving ability Verbal ability, memory, and mental speed Social and behavioural Socioemotional skills and personality Openness to experience, conscientiousness, extraversion, and emotional stability Self-regulation, mindset and interpersonal skills Knowledge of methods and tools Technical General technical skills from schooling and training Occupation-specific skills Source: World Bank, World Development Report 2016 Employment in the digital age requires basic cognitive skills, such as literacy and numeracy, while a well-equipped worker needs skills that are easily transferable across jobs and occupations. A worker needs to be adaptive and flexible, being quick to learn new skills as they are required by the job market. As the World Bank (2016) put them, workers in the digital age require higher-order cognitive, socioemotional, and technical skills. Policy will need to address new issues Human capital and skills development Need for new pedagogies with dynamic curriculum development Access to retraining, reskilling, and lifelong learning Who would provide training and who should pay? Labour markets, wages, and social security Increased casualisationand precarity of work Employment contracts across multiple jurisdictions Inability to collect social security premiums from employers Regional cooperation Digital technology disruptions have cross-border impacts Increasing need for policy coordination and cooperation Knowledge and information sharing 9

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