APEC Growth Outlook Brightens But Risks Linger

Boosted by consumer and government spending, as well as tourism, the APEC region’s economy is expected to grow by 3.5 percent in 2023 and is projected to sustain growth at 3.2 percent in 2024, higher than earlier estimates, according to the APEC Policy Support Unit (PSU).

The updated report forecasts economic growth to moderate in 2025 to 2.8 percent with global uncertainties continuing to put pressure on economic recovery, in addition to the lagged effects of monetary tightening and scaled-down fiscal support measures that APEC economies have to face.

Presenting the report at the First APEC Senior Officials’ Meeting in Lima, Carlos Kuriyama, director of the PSU, warned that protectionism remains an issue as the number of trade restrictions and remedies increased anew in 2023.

“This is something that we need to really pay attention to, especially those of discriminatory in nature as they have the potential to cause some geoeconomic fragmentation—it is a lose-lose situation for APEC as a region as well as the world,” said Kuriyama.

“However, we are also seeing an uptick in trade facilitation with the number of measures in force enabling trade increasing from 618 in 2022 to 682 in 2023. This is encouraging,” Kuriyama added.

Inflation in the region is going down, reaching 3.0 percent in December 2023 compared to 6.1 percent in December 2022. The report notes that while inflation is declining, interest rate adjustments over the past year have partly influenced exchange rate movement. The currencies of 17 APEC economies depreciated 6 percent on average from February 2023 to February 2024, creating an upward pressure to prices and risking currency mismatch that may affect payment obligations.

“Monetary authorities need to remain on guard as incidents in the Red Sea and the drought in the Panama Canal are affecting shipping routes and freight costs that, in turn, could fuel inflationary pressures—making things more expensive,” said Rhea C. Hernando, an analyst with the PSU.

“These issues have resulted in extended sailing times by one to two weeks, causing container and vessel shortages, as well as potential port congestion,” Hernando added.

Data in mid-January 2024 reveal that composite shipping costs had nearly doubled, reaching the highest level in the past 12 months. While the latest data as of 1 February 2024 indicated some decline, the cost is still significant compared to the level a year ago.

Meanwhile, merchandise trade contracted during the first nine months of 2023 as global demand waned and prices for non-fuel commodities and manufactures fell. Export and import value of merchandise trade fell to -7.5 percent and -8 percent respectively, while the export and import volume of merchandise trade fell to -2.1 percent and 4.7 percent respectively.

“The good news comes from commercial services trade which grew 5.5 percent for export and 9.2 percent for imports,” said Glacer Niño A. Vasquez, a researcher with the PSU. “Although the growth rates are decelerating compared to 2022, we note that travel and tourism as well as some goods-related services such as data services supported this growth.”

The report also highlights how government expenditure is outpacing revenue generation in APEC, with fiscal tightening expected in the short term. However, the report underlines the importance of finding the right balance between rebuilding fiscal buffers to prepare for future shocks and supporting economic activity.

“We need a combination of balanced monetary and fiscal policies, at the same time, we need to strengthen regional cooperation to resolve the current challenges,” Kuriyama concluded.

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