Opening remarks by Ahmed M. Saeed, ADB Vice-President, Operations 2, at the APEC Finance Ministers' Meeting, 25 September 2020
Excellencies and distinguished participants:
It is my pleasure to join you today, and to share ADB’s view on economic prospects for APEC Asia. Thank you to our hosts in the Malaysian government for this timely virtual gathering, which should help us coalesce around solutions to problems brought on by the COVID-19 pandemic, as well as to problems that preceeded the pandemic but have been exacerbated by its onset.
Economic outlook and risks for APEC Asia
COVID-19 has given rise to unprecedented health, economic, and social challenges. Economic growth in APEC Asia is expected to plunge to –1.1% this year from a robust 4.2% in 2019. It should rebound to 5.9% in 2021, but this would still leave regional GDP substantially below pre-COVID expectations.
Global trade and supply chain disruptions are also hitting the region’s trade hard. In APEC Asia, exports declined by 13% year over year in May and imports by 21%, as domestic activity and demand weakened. We anticipate that these supply chain disruptions will reduce GDP in the region by 2.3%.
More promisingly, APEC Asia is expected to remain the primary driver of global growth during the post-COVID recovery phase, accounting for almost 40% of global growth in 2021.
Looking forward, we can identify at least three significant risks to APEC Asia’s trade and growth outlook. The main risk, of course, is that COVID-19 may not be effectively contained. Second, ongoing trade tensions and associated supply chain disruptions may further reduce trade and investment. And third, while expansionary monetary and fiscal policies have been a critical component of government efforts to contain the damage caused by the pandemic, there is a risk that some of the large fiscal stimulus packages we have seen could undermine debt sustainability in certain economies, leaving them open to a possible return of financial instability.
Policy recommendations
Stronger regional cooperation will be the linchpin for reinvigorating trade and for re-build supply chains. The countries of the APEC Asia region must cooperate more effectively than before in order to maintain trade openness, particularly in servies, as the global trade and supply chain landscape reorganizes. This is vital for swift and sustainable recovery.
I would like to emphasize three priority areas in this regard:
First, we must build on ongoing efforts to address recurring barriers to trade. We have learned from this crisis that governments can work together to manage trade and supply chain disruptions, and that they are able to harmonize health and safety protocols to ensure that critical connectivity infrastructure such as ports and airports remain open. ADB is working with the Greater Mekong Subregion to standardize sanitary and phytosanitary measures (SPS) and reduce these frictions. The ADB and other development partners are also focused on ensuring that a lack of trade and supply chain finance will not hamper trade growth, especially for SMEs and vulnerable sectors. Since April, ADB’s has committed $2.6 billion to support nearly 3000 transactions as part of its trade and supply chain programs.
Second, e-commerce and digital trade represent an important new opportunity for the APEC region. Consumer behavior is changing, and COVID-19 will help accelerate the digital transformation. We need to adopt coordinated policies to properly regulate digital transactions and to promote greater digital trade. Countries like Malaysia have adopted Digital Free Trade Zones (DFTZ), and we should build on that good example.
Third, digital tools and real-time data, for example through electronic customs clearance for goods, can help automate border processes and optimize supply chains. Digital trade facilitation in APEC Asia could reduce trade costs by as much as 16%. We can encourage businesses to digitize trade information, which in turn will reduce trade costs, streamline operations, and facilitate compliance with protocols.
Conclusion
Let me conclude by reaffirming ADB’s commitment to support the APEC Finance Ministers’ Process. As a part of our continued support, I am also pleased to inform the Ministers that ADB, together with OECD, has finalized and submitted to you a draft report titled “Leveraging Technology and Innovation for Disaster Risk Management and Financing”. This is in accordance with the APEC Finance Ministers 2019 Joint Ministerial Statement calling for collective efforts to enhance financial resilience against economic and disaster shocks. The main findings of the report were shared earlier today with the APEC Working Group on “Disaster Risk Financing and Insurance Solutions.
Thank you. My colleagues at the ADB and I look forward to working with you on these important topics.