As West falters, Asia Pacific region emerging as new global economic engine

John J. Metzler

UNITED NATIONS — Despite the persistent economic headwinds which are expected to slow economic expansion this year, “growth in the Asia and the Pacific area remains better than in any other region; continuing as an anchor of stability and a new growth pole for the world economy.”

That’s the guardedly optimistic prognosis from the 2012 Economic and Social Survey of Asia and the Pacific survey.

Produced by the UN’s Bangkok-based Economic and Social Commission for Asia and the Pacific (ESCAP), the annual survey concedes that the region continues to face a challenging external environment which will slow regional growth this year to 6.5 percent from last year’s average of 7 percent.

The Korean stock index is reflected on glass at the Korea Exchange in Seoul. /AFP

The figure is still pretty impressive given global doldrums with the United States facing anemic economic growth, and Western Europe and Japan making lukewarm GDP gains. And it’s this global environment which has put the brakes on Asia’s growth. With reduced demand in the regional traditional export markets “resulting from the Eurozone debt crisis and continued economic uncertainly in the United States of America, together with higher capital costs,” there’s an expected slowdown.

Dr. Noeleen Heyzer, ESCAP’s Executive Secretary states: “the recovery from the depths of the 2008 global financial crisis proved to be short-lived. The world economy enters the second stage of the crisis in 2011, due to the Eurozone debt crisis and continued uncertain economic outlook of the U.S. economy.”

Yet, the ESCAP report states, “The foremost risk is a scenario in which a disorderly sovereign debt default in Europe, or the breakup of the Euro common currency area results in a renewed global financial crisis.” Another threat remains the “sharp and sustained surge in the price of oil” due to non-economic factors such as political instability in major petroleum producing countries.

Importantly the Economic and Social Survey stresses that dealing with disaster from the February 2011 earthquake in Christchurch New Zealand, followed by the devastating March earthquake and tsunami in Japan, and the severe flooding in Thailand were unexpected economic jolts. For example, the impact of the floods saw Thailand’s growth contract 9 percent in the last quarter, but GDP is expected to bounce back this year to a healthy 6 percent gain. Japan is expected to only reach a tepid 1.6 percent growth rate in 2012.

More than any one event, the devastating tsunami and aftermath created severe shocks to the already ailing Japanese economy through a dislocation of industrial production, the supply chain, and the enduring psychological trauma following the disaster. Equally but largely overlooked has been the serious floods in Thailand which have created havoc in large urban areas such as Bangkok the capital in both manufacturing as well as tourism sectors.

Yet the Survey states that despite the slowdown “the region will remain the world’s fastest growing with China forecast to grow at a robust 8.6 percent, decelerating from the 9.2 percent rate of 2011.” It adds, Growth in India is projected at 7.5 percent in 2012, up from 6.9 percent in the past year.

Naturally it’s not all roses. The report cites “serious and growing inequalities between and within countries of the region, both in terms of income and social progress.” Indeed “income inequality in developing Asia-Pacific economies has been “rising at a worrying pace,” especially in places such as China, India and Indonesia.

As the report also warns, “commodity price volatility” poses an enduring risk, but is “likely to become the ‘new normal’ of the global economy.” Indeed the spike in commodity prices such as petroleum poses a major drag to economic recovery here in the USA as well as overseas.

If indeed uncertainty becomes the “new normal,” it’s increasing incumbent on governments, businessmen, and policymakers to show a renewed flexibility in dealing with the conditions at hand.

Insecurity and risk are really nothing new in global markets. What remains an uphill challenge at least in the West, is that over-regulated, nanny-state governments are reducing the very entrepreneurial space and spirit and policy flexibility needed to tackle the economic challenges ahead.

John J. Metzler is a U.N. correspondent covering diplomatic and defense issues. He writes weekly for WorldTribune.com.

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