The worst of the global financial crisis may be over, but the longer term challenge is the creation of balanced and sustainable global economic growth when government fiscal support is withdrawn. This message of cautious optimism resonates from over 350 business leaders in the APEC region, based on a joint survey by PricewaterhouseCoopers (PwC) and the APEC CEO Summit 2009 organising committee.
The survey sought respondents' views on the impact of the financial crisis and the role of APEC in rebuilding the global economy. The survey findings identified Rebalance, Connectedness and Sustainability as the agenda of the global economy for the next few years.
Over half (58%) of respondents believe that the world has seen the worst of the crisis. Only 28% of all respondents agree or strongly agree with the statement "unemployment will revert to pre-crisis levels in the next 12 months."
Pessimism surrounding unemployment is highest in the Americas (21%) and the lowest in North East Asia with 31% agreeing or strongly agreeing with the statement. This would imply a general sentiment that recovery will be long-drawn and unemployment is expected to persist.
"APEC is at the forefront of change and many of its economies have weathered the financial crisis well. They will play a critical role in bringing about balanced and sustainable growth as the world emerges from the shadows of this unprecedented crisis. While the outlook remains cautious, there is a sense of hope and openness to change in the post-crisis climate," says Dennis M. Nally, Chairman of PricewaterhouseCoopers International, who spoke at the APEC CEO Summit in Singapore.
Reworking the global order
The crisis may have hastened a tectonic shift in global economic power. While emerging economies witnessed a slower pace of growth owing to shrinking export markets, most of their financial systems escaped the crisis relatively unscathed and in fact, some of them offer a more stable and robust economic environment than certain developed economies. This is borne out in the survey where 37% of respondents believe that it will take two to three years for the global economy to recover fully. Within regions, 45% of respondents from the Americas believe that global economic recovery will take two or three years.
"The size of many emerging economies suggests that they will become the drivers of global economic growth in the coming years,” notes Silas Yang, Executive Chairman and Senior Partner, PwC China.
Yang says that, as the biggest emerging market, China's strong economic recovery is mainly driven by massive fiscal investment and rising domestic consumption spurred by a series of government incentives and subsidies. “To sustain this growth rate in the long term, China will have to reduce its over reliance on exports and nurture the domestic consumption market by encouraging its people to spend more," remarks Yang.
Restructuring the global financial sector
Almost all respondents (97%) recognise that US leadership remains critical in overhauling the global financial architecture. This view is shared by almost all respondents from the Americas (96%) who expect the US to continue to play a role in the global financial arena, in particular, to enhance the working of the International Monetary Fund (IMF) by giving voice to other economies in the world, setting standards in global financial regulation and streamline its own domestic regulatory systems. In the short term, the role of the US dollar as the de-facto reserve currency is unlikely to change. However, 47% of respondents expect an alternative currency in the next 10 years.
Balance between consumption and savings
The majority of respondents agree that APEC ex-USA should reduce its current account surplus by spending more, a suggestion that garnered most support from Americas (68%) and least from North East Asia (44%). In light of the global economic crisis, rebalancing requires policy makers and private sector leaders to orient public policies towards finding the right balance between consumption and savings and to adapt to a new global political and economic order.
Streamlining regulation and discouraging protectionism
The economic crisis has starkly exposed the degree of connectedness in the world today, emphasising the need for regulation to be more globally coordinated in the post-crisis environment. World economies should also see the crisis as an opportunity to give global trade a boost. In this light, the success of the World Trade Organisation's Doha Development Round of negotiations becomes more significant for businesses all over the world as it could potentially invigorate world trade and allow countries to exploit their competitive advantage. Over half of the respondents view the success of the Doha Round as important for their business, with expectations particularly high in the Americas where 67% believe the Doha Round is important or very important for their business. In North East Asia, 54% of respondents believe the Doha Round is important or very important.
Respondents from the Americas, in particular, look to free trade agreements (FTAs) with key global economies to give an impetus to their businesses (77%) while South East Asian respondents expect bilateral agreements with regional economies to boost their businesses (59%). Majority (72%) of respondents view the development of FTAs within APEC as being important or very important for their business. This received overwhelming support from respondents in the Americas (93%).
Breaking trade barriers
In order to have sustainable current account balances, promotion of regional trade is identified as the most important measure (74%) among all respondents.
Those from the Americas believe that "stimulating consumption by strengthening social safety nets" is more important than "promoting regional trade" while North East Asian respondents ranked "promoting regional capital flows and investments" as the top directive which APEC ex-USA should focus on to redirect its current account surplus. Nearly all respondents (96%) expect intra APEC ex-USA trade to increase in the near future, with those from the Americas showing the highest expectations.
"Free trade has spread wealth faster and further than ever before and open economies like Singapore is a beneficiary of that,” comments Gautam Banerjee, Executive Chairman, PricewaterhouseCoopers LLP Singapore, adding that the competitive advantage brought about by free trade can empower emerging economies and have lifted millions out of poverty. “As unemployment remains high and domestic demand contracts, leaders of advanced economies should not succumb to political pressure and create protectionist barriers. Instead their economies should progress to higher value-added activities so that emerging economies in the world can continue to thrive," says Banarjee.
Climate change and food security
Future economic growth will be underpinned by managing climate change, ensuring food security and investing in innovation. The role of legislation is considered very important by nearly all survey respondents in creating a sustainable business environment for the future (90%), with the highest expectations coming from South East Asia (94%). Two-thirds of all respondents recognise the importance of investment in green technologies with North East Asia and the Americas according relatively higher importance than other regions.
Investing in innovation
Investment in innovation has not taken a backseat in the global crisis. Over 58% of respondents forecast higher R&D spending in the next 12 months, as compared to the previous 12 months, with the highest forecast by North East Asian respondents (66%) and nearly half (48%) of respondents in the Americas do not expect any change in their R&D budgets.
"It is interesting to note that the character of US leadership has clearly changed. While the US still has a key role to play in the global economy it is the recovery of the emerging economies that is driving the global economy out of this downturn," concludes Nally.