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APEC Regional Trends Analysis New Virus, Old Challenges and Rebuilding a Better Asia-Pacific APEC Amid COVID-19: Navigating Risks and Opportunities Towards Resilience

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APEC Regional Trends Analysis New Virus, Old Challenges and Rebuilding a Better Asia-Pacific APEC Amid COVID-19: Navigating Risks and Opportunities Towards Resilience APEC Regional Trends Analysis New Virus, Old Challenges and Rebuilding a Better Asia-Pacific APEC amid COVID-19: Navigating Risks and Opportunities towards Resilience APEC Policy Support Unit • November 2020 Prepared by: Asia-Pacific Economic Cooperation Policy Support Unit Asia-Pacific Economic Cooperation Secretariat 35 Heng Mui Keng Terrace Singapore 119616 Tel: (65) 6891-9600 │ Fax: (65) 6891-9690 Email: [email protected] Website: www.apec.org Produced for: Asia-Pacific Economic Cooperation APEC#220-SE-01.19 This work is licensed under the Creative Commons Attribution- NonCommercial-ShareAlike 3.0 Singapore License. To view a copy of this license, visit http://creativecommons.org/licenses/by-nc-sa/3.0/sg/. The views expressed in this paper are those of the authors and do not necessarily represent those of the APEC Member Economies. TABLE OF CONTENTS List of figures iii List of tables iii List of boxes iii Key abbreviations iv Key messages v 1 New Virus, Old Challenges and Rebuilding a Better Asia-Pacific ........................ 1 1.1 A year like no other 1 1.2 New virus, old challenges 2 1.3 New virus, new technology 6 1.4 Rebuilding a better Asia-Pacific 8 2 APEC amid COVID-19: Navigating Risks and Opportunities toward Resilience ................................................................................................................... 10 2.1 APEC GDP growth 10 2.2 Inflation and monetary policy 12 2.3 Trade performance 13 2.4 Investment trends 15 2.5 Trade and investment measures 16 2.6 Near-term outlook, risks and opportunities 18 2.7 Conclusion 24 APEC Regional Trends Analysis, November 2020 iii LIST OF FIGURES Figure 1.1. Daily reported COVID-19 cases and deaths in APEC, ................................................................ 2 Figure 1.2. Poverty, affluence and distribution in APEC, 1990–2018 ........................................................... 4 Figure 2.1. Real GDP growth (%), 1H 2019 and 1H 2020 ........................................................................... 10 Figure 2.2. Growth in consumption and investments (%), 1H 2019 and 1H 2020 ....................................... 11 Figure 2.3. Inflation rate (%), 1H 2019 and 1H 2020 ................................................................................... 12 Figure 2.4. Monetary policy rate (%), end-2019, end-March 2020 and end-September 2020 .................... 12 Figure 2.5. Growth in the volume of merchandise trade (%)........................................................................ 14 Figure 2.6. Growth in the value of merchandise trade (in %) ....................................................................... 14 Figure 2.7. Growth in commercial services, 1H 2019 and 1H 2020 ............................................................. 15 Figure 2.8. APEC FDI and greenfield investments (USD billion), 2018–2019 ............................................ 16 Figure 2.9. Trade and trade-related measures in APEC (actual number), 2017–2020 .................................. 17 Figure 2.10. GDP growth, actual (2019) and projected (2020–2022) (%) .................................................... 19 Figure 2.11. Proportion of female graduates in STEM programmes in APEC (%) ..................................... 23 LIST OF TABLES Table 2.1. Monetary and macro-financial measures in APEC amid COVID-19 .......................................... 13 Table 2.2. Value of and growth in merchandise trade, 1H 2019 and 1H 2020 ............................................. 14 Table 2.3. Value of and growth in commercial services, 1H 2019 and 1H 2020 ......................................... 15 Table 2.4. Trade and trade-related measures in APEC, mid-October 2019 to mid-May 2020 ..................... 17 Table 2.5. Investment measures in APEC, mid-October 2019 to mid-May 2020 ........................................ 18 Table 2.6. Selected STEM initiatives in APEC ............................................................................................ 24 LIST OF BOXES Box 2.1. Women’s participation in STEM ................................................................................................... 23 APEC Regional Trends Analysis, November 2020 iv KEY ABBREVIATIONS APEC Asia-Pacific Economic Cooperation FDI foreign direct investment GDP gross domestic product IMF International Monetary Fund NEER nominal effective exchange rate OECD Organisation for Economic Co-operation and Development PSU Policy Support Unit (APEC) UNCTAD United Nations Conference on Trade and Development WTO World Trade Organization APEC Regional Trends Analysis, November 2020 v KEY MESSAGES I. New Virus, Old Challenges and Rebuilding a Better Asia-Pacific This year has been like no other in recent memory, with a novel coronavirus dominating lives, economic activity and policy decisions. Hundreds of thousands are dead, trillions of dollars of output have disappeared and millions of jobs have been lost. COVID-19 has mercilessly exploited old challenges of environmental damage and growing inequality that have not been adequately addressed. Environmental damage through deforestation, logging and mining increases our exposure to diseases by increasing human-to-animal contact. Infectious diseases with zoonotic origins, such as COVID-19, are a side effect of unsustainable practices. The frequency and severity of diseases are also affected by changes in climate patterns, with rising temperatures providing ideal conditions for the spread of pathogens and disease vectors. COVID-19 has been hardest on the most vulnerable in our societies. It has exposed social and economic inequalities, which have been magnified in the disproportionate impact of the crisis on the poor, women, the youth, ethnic minorities and indigenous peoples, and other vulnerable groups. Persistent poverty and barriers to access to healthcare, skills development and economic opportunities interacted with the virus, resulting in severe public health and economic outcomes. Meanwhile, the nature by which COVID-19 spreads and the responses to contain it have accelerated the process of digitalisation, with adoption of digital solutions no longer an option but a necessity. However, digitalisation comes with its own challenges: cybersecurity, data privacy and digital fraud, along with outdated regulations and economic structures. In a year like no other, the region has been compelled to rethink how it works, how it learns, and what it prioritises. The region needs to invest in green jobs and infrastructure, shift away from a fossil fuel economy, and internalise environmental and climate impact into economic production. It needs to ensure equitable access to healthcare, infrastructure, technology, and education and skills development to enable all people to contribute to and benefit from economic opportunities. It needs to maximise the potential of the digital economy through innovation and competition, but at the same time address potential adverse impact on jobs and incomes in the pursuit of an equal and inclusive society. Regional cooperation, particularly APEC, will have a key role in the rebuilding process. The COVID-19 pandemic has shown the importance of a coordinated and cooperative response to regional and global crises. Economies will need to share experience and information, develop trust, and build avenues for cooperation and policy coordination. APEC can be the forum where priorities and policies are discussed and commitments are made toward an inclusive, sustainable and resilient Asia-Pacific region. APEC Regional Trends Analysis, November 2020 vi II. APEC amid COVID-19: Navigating Risks and Opportunities toward Resilience The APEC region contracted by 3.7 percent in the first six months of 2020, a sharp reversal from the 3.4 percent growth seen in the same period in 2019. Household consumption, a reliable source of growth for APEC economies declined by 7.1 percent while investments contracted more at 11.2 percent during the same period. Growth in the volume and value of merchandise trade recorded bigger contractions during the period January–June 2020 compared to year-ago levels, while commercial services plunged. Trading activity in the APEC region was adversely affected by the combined impact of the temporary closure of borders, disruptions in global supply chains, and persistent trade and technology tensions that began to escalate in 2018 with the imposition of tariff and retaliatory measures. A key contributing factor in the continued weakness in trading activity is the proliferation of trade-restrictive measures. The period covering mid-October 2019 to mid-May 2020 saw the number of measures implemented by APEC economies that served to restrict the flow of trade go up to 57, dominating measures that facilitated trade, which totalled 21. Absent vaccines and therapeutics, economies have to grapple with the trade-off between continuing to impose movement restrictions at the risk of long-term economic scarring, or reopening the economy at the risk of a resurgence in infections, which in turn, could negatively feed on consumption and business sentiment and thus, hold back economic activity. Prolonged stay-at-home measures, mandatory or voluntary, to safeguard health amid an ongoing pandemic, have translated into significant cutbacks in consumption and investments. As a result, the APEC region is expected to contract in 2020 by 2.5 percent, equivalent to an output loss of around USD 1.8 trillion. GDP growth projections for 2021, at 5.2 percent, reflect an economic
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