Growing trade and investment linkages in Asia and the Pacific help improve the region’s economic resilience to uncertainties in the global economic and trade policy environment, according to a new Asian Development Bank (ADB) report.
Strong intraregional trade and investment are acting as a buffer for the region against uncertainties in global trade and economic growth, according to the newly released Asian Economic Integration Report 2017.
In 2016, Asia’s intraregional trade share―measured by value―rose to 57.3%, a record high, up from an average of 55.9% from 2010 to 2015. Subregionally, trade integration—measured by the share of intra-subregional trade to total trade—is strongest in East Asia, followed by Southeast Asia and Central Asia.
Asia’s trade by volume grew faster than global trade in 2016, but remained below its economic growth. Asia’s trade growth picked up to 1.7% in 2016 from 1.4% in 2015, while the world trade growth decelerated to 1.3% from 2.6%.
Ongoing global economic recovery lifted demand for the region’s exports, particularly from Japan, Taiwan, Hong Kong, and Vietnam. The region’s import growth has also accelerated recently due to robust demand from China and India, among others.
Developing Asia’s economic output is expected to grow 5.9% in 2017 and 5.8% in 2018 from 5.8% in 2016. A rebound in global trade, recovery in major industrial economies, and stronger-than-expected growth in China are expected to support the better growth outlook.
More than 70% of the region’s economies should see faster growth compared with 2016, with higher rates in all subregions except East Asia and South Asia, where growth this year is stable. A better external environment and strong domestic demand generally support the forecast.
After two years of lower export receipts, the value of the region’s exports surged 10.1% year-on-year in the first seven months of 2017. Moderately rising oil prices are giving some fiscal relief to oil and gas exporters without destabilizing oil importers. Excluding China, Asia’s eight largest developing economies also saw real manufacturing exports rebound—particularly electronics, where foreign direct investment (FDI) has been increasing.
Foreign direct investment within Asia rose in absolute value to reach US$272 billion in 2016, despite a 6% decline in global FDI flows into the region. This intraregional FDI increased as a share of total FDI to the region from 48% in 2015 to 55% in 2016.
“Given the role intra-Asian FDI plays in enhancing global and regional value chain development, this is expected to help strengthen the region’s trade growth globally,” said the report.
Asian economies have continued expanding their global presence, with FDI originating from Asia rising 11% in 2016 to $482 billion, primarily through investment in renewable energy, natural resources, semiconductors, and information technology.
Tourism, too, is growing rapidly in the region, with an increasing number of tourists traveling within the region. Asia is the second largest beneficiary of tourism receipts after Europe. Tourism receipts reached $398.6 billion in 2015 after growing an average 10.1% yearly since 2012. More than 70% of Asia’s outbound tourists traveled within the region. The number of tourists from China rose 11.8% in 2015, with 61.0% staying within the region. China, Thailand, and Hong Kong earned most from tourism.
“Asia and the Pacific is leading a recovery in world trade that is helping the region to maintain strong growth momentum amid global economic and trade policy uncertainty,” said Yasuyuki Sawada, ADB’s chief economist. “Asia’s continued integration and cooperation will underpin regional economic growth and financial resilience.”
Significant challenges remain, however, with unresolved financial market and system weaknesses. Remaining regulatory policy gaps could also increase the region’s risk exposure and financial vulnerability through excessive leverage and risk-taking.
The report offers several recommendations for countries in the region to strengthen their resilience to future crises, including maintaining sound macroeconomic fundamentals; further strengthening national regulatory and supervisory frameworks and institutional capacities; further developing local currency bond markets; strengthening regional regulatory cooperation, including resolution mechanisms for interconnected regional banks; and reviewing and strengthening existing financial safety nets against potential contagion and spillover effects.
The Asian Economic Integration Report 2017 is the annual report of the ADB on Asia’s progress in regional cooperation and integration.
