Economic optimism fades in Asia

Optimism for global economic growth is dropping, according to a new report surveying opinion leaders in Asia that will be released Wednesday ahead of the Group of 20 and APEC summits.

The annual State of the Region Report by the Pacific Economic Cooperation Council (PECC) which is to be released in Yokohama, Japan, also finds that decision makers in the region are calling for a new mandate for the Asia-Pacific Economic Cooperation organization.

The PECC report found that just 36 per cent of respondents expect stronger global economic growth over the next year. In contrast, 67 per cent expected stronger growth when surveyed a year ago.

Concerns about a floundering U.S. economy, high energy prices, and mounting protectionism are among the largest risks to global economic growth prospects, the report says.

"The optimism of 2009 has tempered significantly and the risk factors have gone up. The outlook for the U.S. economy continues to be tepid. Most of the optimism is focused on East Asian economies," Yuen Pau Woo, co-ordinator of the report and president and CEO of the Asia Pacific Foundation of Canada, said in an interview.

India, China and other East Asian economies have been the engine of economic recovery following the global financial crisis, but continuing slow growth in Japan, Europe and the United States threatens to derail the rebound.

China's economy is expected to grow 10.5 per cent this year, according to the International Monetary Fund, while Japan is expected to grow by 2.8 per cent and the U.S. by 2.6 per cent.

"I don't think [autonomous growth in Asia]is sustainable. I think it is partly due to the fiscal stimulus, and it is partly due to expectations of global recovery, and that could be derailed very quickly," Mr. Woo said.

"It is too soon for Asians to be self-satisfied that they can merrily go along with robust economic growth even if the world doesn't recover," he added.

The major issues facing global leaders at the G20 conference in Seoul and the APEC forum in Japan next week, include finding solutions to global trade imbalances which threaten long-term economic stability.

Massive trade surpluses in China and other East Asian economies, coupled with the enormous U.S. trade deficit, will have to be tackled by major financial reforms initiated by global co-operation among leaders - not simply by Beijing and Washington, the PECC report insists.

Through quantitative easing, the United States is now manipulating its own currency and China is going along with this because its currency remains closely pegged to the U.S. dollar, Mr. Woo said.

"That brings the rest of the world into the picture because the competitiveness of China and the U.S. has increased vis-à-vis third countries, particularly East Asian exporters. So any solution to the global imbalance problem will have to bring in the Koreas, the Japans, the Southeast Asians as well as the European Union," he said.

"We are talking about the need for international economic co-operation rather than a G2 solution," Mr. Wood said, referring to Washington and Beijing.

Business leaders, academics and policy makers surveyed in the report said APEC needs to define a new mandate for itself to promote regional free trade and create economic reforms over the next five years.

Some respondents believe the recent creation of the G20 forum has threatened APEC's relevance. However, the fact that the G20 has no institutional structure and no continuity between meetings gives APEC, made up of 21 countries in the Pacific Rim, an opportunity to lead the difficult job of financial reforms.

"APEC has an institutional structure; it has specific modalities for working together, it has working groups and regular meetings. This could be a trajectory for APEC's new raison d'être and a way for it to distinguish it from G20 and other institutions," said Mr. Woo.