Full Report - Subregional Office for East and North-East Asia - escap

THE STATE OF INCLUSIVE AND SUSTAINABLE DEVELOPMENT IN UNCERTAIN TIMES CHAPTER 1
are signs that the housing market, a key driver of
the recession in the economy, may have bottomed
out as evidenced by a range of noisy but broadly
positive data readings over recent months. Consumer
confidence also appears to be recovering, a key
requirement given the consumption-dependent nature
of the economy. Unemployment, as a consequence
of this steady increase in economic activity, has
been on a downward trend. Given the importance
of the United States as an export market globally,
and specifically for Asia and the Pacific, the positive
growth in the United States economy may provide
some support to growth in the region. Nevertheless,
growth rates and demand in the United States
remain far below their levels before the crisis and
therefore do not assist growth in the region to the
same degree as they did prior to 2008.
The negotiations on resolving the fiscal programme
of the United States in coming years, through
numerous interrelated legislative deadlines such as
the “fiscal cliff”, the budget sequester, the continuation
of government funding and the raising of the debt
ceiling, have created additional difficulties for Asia-
Pacific economies. The problems stem from not only
the actual impacts of these decisions on spending
and growth in the United States but also from the
uncertainty created by a series of partial measures
to deal with the issues which have served to delay
final resolution. The lack of clarity regarding the
economy’s medium-term fiscal policy position is
tied to legislative deadlock, resulting in a series of
short-term pacts and extended uncertainty on global
financial markets in response to concerns about the
health of the United States economy. This uncertainty
has affected the region through periodic episodes of
short-term capital outflows from Asia-Pacific markets.
Any possible composition of the eventual outcome
of the negotiations to resolve the fiscal programme
of the United States will result in a reduction in
demand in the United States as taxes are increased
and government spending is curtailed. Given that
spending cuts may be undertaken along a ten-year
horizon, some measures could be backloaded to
occur once the economic recovery is more solid.
Nevertheless, it is likely that growth in the United
States will be put under further pressure by reduced
demand that will result from the pact. It can be
argued that the United States is currently engaged
in a moderate form of austerity, a reversal from its
previous expansionary policy stance.
The persistent climate of economic
policy uncertainty in both the euro
zone and the United States
has markedly affected regional
output levels
The persistent climate of economic policy uncertainty
in both the euro zone and the United States is
estimated by ESCAP to have reduced GDP in
the Asia-Pacific region by 3% below what it would
have been otherwise. This equates to total loss in
GDP of $870 billion. However, the analysis shows
that governments in the region could fortify their
economies against the impact of such economic
uncertainty by implementing pro-active policies. This
could on average, moderate the negative effects on
GDP for countries by around 75%. With regard to
employment, pro-active policies could save large
number of jobs, up to 2.6 million workers just in
the case of China (see box 1.1).
The outlook for the economy of Japan remains
subdued. Given the importance of exports for
the Japanese economy, the global slowdown has
substantially affected its growth prospects. While the
economy initially benefited from an uptick in growth
in 2012 due to the resumption of economic activity
following the Great East Japan Earthquake, growth has
now retreated towards the moderate levels seen over
past years (see figure 1.1). Exports had particularly
suffered as the yen appreciated strongly up until the
third quarter of 2012 due to the repatriation of funds
by the domestic financial sector. The enactment of a
large new round of fiscal stimulus in early 2013 of
$116 billion combined with a policy of monetary easing
with an inflation target of 2% and a depreciation in the
exchange rate offers the possibility of some additional
increment to domestic demand and exports in coming
months. However, the impact of the country’s current
slowdown on Asia and the Pacific is limited as the
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