Steering The APEC Region Through Unprecedented Global Challenges In A New Era

By Rhea Crisologo Hernando, Glacer Niño A. Vasquez and Carlos Kuriyama

APEC faces slowing growth and rising fiscal pressures, with medium-term prospects dampened by trade barriers, geopolitical issues and structural constraints. Strengthening resilience through bold reforms and deeper regional cooperation remains essential for growth and stability.

While short-term economic perspectives in the APEC region appear steady, the medium-term outlook is less promising, requiring strategic action to tackle mounting challenges. Headwinds are putting increasing pressure on the global economy, with rising geopolitical tensions, persistent trade barriers, and sustainability issues. APEC economies must act swiftly to prevent a scenario of economic distress.

APEC’s growth prospects: A mixed outlook
APEC’s economic expansion is on a stable but cautious trajectory. The region’s GDP is estimated to have grown by 3.5 percent in 2024, with a projected moderation to 3.3 percent in 2025. However, in the medium term, growth is expected to slow further to 2.7 percent, trailing the global economy’s 3.0 percent pace. This slowdown reflects the confluence of multiple risks—from structural issues like the reality of an ageing population to heightening trade restrictions and geopolitical tensions.

Tourism and trade: Bright spots amid fragile conditions
Tourism has emerged as a bright spot, driving growth in commercial services trade and fostering stronger economic and cultural ties. However, the broader trade landscape remains uncertain. While merchandise trade rebounded in the first three quarters of 2024, growing 3-4 percent after a sharp contraction last year, measures affecting trade continue to rise. APEC economies enforced 1,043 trade remedies as of December 2024—up from 960 in 2023—largely consisting of countervailing and anti-dumping measures, posing risks to fragile trade gains. The simultaneous increase in trade-facilitating measures although at a much slower pace, underscores the region’s struggle to balance open trade with protectionist pressures.

Rising risks: Fiscal pressures and macroeconomic stability
Inflation relief has offered a silver lining, with rates trending downward to 2.6 percent in 2024 from 3.8 percent in 2023. This decline has provided central banks room to adjust monetary policies, supporting economic activity. Nevertheless, an increase in trade-restrictive measures may exert upward pressure on prices in the medium term, thereby reducing the likelihood of interest rate cuts. Furthermore, fiscal challenges loom large and immediate. The widening fiscal gap, driven largely by sustained high government spending, threatens to push public debt to unsustainable levels even as revenue collection has remained stagnant at 28-29 percent of GDP for over two decades. Without fiscal consolidation, debt risks could undermine long-term stability.

Global uncertainty fuels demand for safe havens
Rising global risks have spurred gold prices to record highs as investors seek safety in uncertain times. Indices measuring economic policy uncertainty have surged between 2020 and 2024, compared to the previous decade, while geopolitical risk indices have similarly escalated. Issues affecting sustainability are adding another layer of economic vulnerability as well.

Charting a sustainable path forward
Navigating these complex challenges requires a well-crafted, multi-pronged approach:

• Prudent and sound monetary & fiscal policies: Gradual, flexible monetary policies should support growth while safeguarding against inflation. Meanwhile, fiscal consolidation is essential to rebuilding buffers and ensuring debt sustainability.
• Multilateral cooperation to facilitate trade and investment: Strengthening APEC’s role as a regional economic forum will be key in addressing concerns on trade and investment issues and fostering policy dialogue on key reforms to bolster regional resilience and achieve sustainable growth.
• Structural reforms to improve productivity and competitiveness: Reforms should focus on enhancing productivity and fostering innovation and entrepreneurship by removing barriers to competition. There are many ways that these could be achieved, considering the fact that APEC economies are on divergent phases of economic and technological development. It would be beneficial to harness technological innovations to improve efficiency and connectivity while minimizing operational costs. Investing in human capital by improving access to quality education and healthcare should also be in the agenda, as well as streamlining labor markets to encourage greater workforce participation and invest in skills upgrading. These reforms will be crucial to securing APEC’s long-term economic future.

APEC stands at a pivotal moment, facing a convergence of global and regional challenges. By implementing well-crafted policies and forward-looking reforms, the region can navigate uncertainties and build a more resilient, sustainable economic future.

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Rhea Crisologo Hernando is analyst, Glacer Niño A. Vasquez is researcher, and Carlos Kuriyama is director at the APEC Policy Support Unit.

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