The APEC region posted a 6.1 percent increase in economic growth in the first quarter of 2021, bouncing back strongly from a 2 percent decline in the first quarter of 2020, according to an updated report by the APEC Policy Support Unit. This number comfortably puts the region on track to achieve growth expectations for the year, which is now estimated at 6.4 percent, or slightly higher than the earlier prediction.
High growth in the first quarter of 2021 is due to a combination of factors, including the low comparison point following substantial economic contraction a year ago as well as higher government spending given the sustained impact of the pandemic on economic activities, while domestic consumption grew considerably during this period.
In the near term, the APEC Policy Support Unit still sees sustained stimulus measures from governments driving the region’s economic growth. Private consumption will also get a boost of confidence as consumers are expected to draw on their accumulated savings, bolstered in part due to cash transfers and wide-ranging subsidies to households.
“Vaccination programs and rollout still drive economic growth and the recovery progress in the region,” said Dr Denis Hew, Director of the APEC Policy Support Unit.
“We are still seeing a disparity in access to vaccination coverage across APEC; economies with faster rollouts and sustained fiscal support will recover faster and stronger, while economies that struggle with vaccine access and have limited fiscal space will take more time to recover due to these uncertainties,” explained Dr Hew.
Vaccination coverage across APEC is noticeably diverse, ranging from 148 doses per 100 residents to a low of only one dose per 100 residents. As a result, the rate of fully vaccinated people across economies varies greatly, from as low as 0.2 percent to as high as 72 percent of the population as of mid-August.
“The race to vaccinate as many people as possible in the shortest amount of time is extremely crucial,” said Rhea C. Hernando, an APEC Policy Support Unit researcher who updated the report. “Economies cannot afford to keep imposing restrictions, close borders and indefinitely provide wide-ranging fiscal and monetary support.”
Hernando explained that multilateral cooperation is key in facilitating the free flow of vaccine components and related supplies as this will significantly contribute to the accessibility and affordability of vaccines, especially for low- and middle-income economies.
“It is now clear that for economic recovery to be on firmer footing, health must be safeguarded, which in turn necessitates access to vaccines to protect as many people as possible, as soon as possible,” she added.
In terms of trade, the region performed positively in the first quarter of 2021, with the value of merchandise exports and imports growing at a higher rate of 16.8 percent and 16.2 percent, respectively, from a contraction of 6.1 for exports and 4.1 percent for imports during the same period last year. This improved performance is brought mainly by pharmaceuticals and office and communications equipment, while the agrifood, apparel, metals and minerals sectors also added to the trade boost.
The unfaltering impact of COVID-19 on the transport and travel sectors continues to drag APEC’s commercial services performance. For the period January to March 2021, commercial services declined further to 12 percent for exports and 15.2 percent for imports, compared to a decline of 9.5 percent for exports and 9.2 percent for imports for the same period in 2020.
The updated report also notes an increase in inflation during the first half of 2021 to 2.3 percent, compared to 1.6 percent in the first half of 2020, due to the gradual normalization of prices. Inflation is expected to revert to its pre-pandemic levels globally once prices factor in pandemic-related supply-side disruptions.
The whole-year forecast of inflation for the APEC region is 2 percent while it could increase to 2.2 percent in 2022. There is a risk that the upward trend in inflation could persist as consumption activity strengthens following successive quarters of pent-up demand. The report notes that price pressures require continued monitoring and clear communication from monetary policy authorities to guide inflation expectations.
“Addressing the ongoing health crisis, primarily through rapid vaccination rollouts even as appropriate health measures continue to be observed, remains paramount to strengthen economic recovery,” Hernando concluded. “When people feel safe, they are more confident to go out, work and spend accumulated savings while business could resume investment activity, supporting a gradual but uninterrupted economic reopening toward a stronger recovery.”