Australia’s Asia-Pacific neighbourhood has remained the main growth engine of the world economy this year, which also marks the thirtieth anniversary of the founding of the Asia Pacific Economic Co-operation (APEC) forum. The 2.9 billion people living in the APEC region represent 40 per cent of the world’s population and produce 60 per cent of global GDP.
Over the past three decades the region’s economy has almost trebled, and average incomes more than doubled. Extreme poverty has been drastically reduced, due mainly to hundreds of millions of Chinese benefiting from astounding economic growth rates. Trade in goods and services has contributed strongly to economic growth over this time, expanding (at 7.1 per cent) nearly twice as fast as GDP growth (at 3.7 per cent). However, since 2012 international trade growth in the region has slowed, corresponding more closely with GDP growth.
As an open economy, Australia’s economic growth depends heavily on international trade and investment links with the rest of the world. Close to three quarters of Australia’s trade is with APEC members, measured on a two-way trade basis.
The Asia-Pacific region is expected to record 5.5 per cent economic growth in 2019, slightly more than in 2018, and above the latest International Monetary Fund (IMF) forecast for the world economy as a whole of 3.2 per cent.[i] Amongst the advanced Asia-Pacific economies, the United States (US) is forecast to grow 2.6 per cent this year, down from 2.9 per cent last year, as the positive effect of US company tax cuts diminishes while the negative effect of rising protectionism takes hold. Japan’s growth remains subdued at 0.9 per cent, close to last year’s 0.8 per cent outcome.
Amongst emerging APEC members, China’s growth is expected to fall from 6.6 per cent in 2018 to 6.0 per cent in 2019, reflecting the impact of trade tensions with the US. The ASEAN-5, comprised of Indonesia, Malaysia, the Philippines, Thailand and Vietnam, are forecast to grow slightly less as a group at 5.0 per cent this year, compared to 5.2 per cent last year.
Meanwhile, (non-APEC) India continues to be the strongest performing economy in the broader Indo-Pacific region, with growth expected to rise slightly from 6.8 per cent in 2018 to 7.0 per cent in 2019. India now joins China, Japan, the US and South Korea as one of Australia’s top 5 trading partners. See Table 1.
Table 1: Australia’s top 5 trading partners in 2018
Figure 1 below compares Australia’s forecast growth with predicted growth in our top five trading partners according to the latest IMF forecasts. Australia’s economic growth improves in 2020, although growth is expected to be lower for China, Japan, the US and South Korea. The exception is India, again expected to outperform China, with growth rising slightly above its current 7 per cent rate to 7.2 per cent in 2020. The looming risks to growth for Australia and its trading partners are canvassed subsequently.
Figure 1: 2020 forecast economic growth in Australia’s top 5 trading partners (%)
Please click here to read the full “Asia Pacific 2020 economic outlook” article published in the 2019 State of the Neighbourhood report, written by Griffith Asia Institute member, Professor Tony Makin.