Reforms needed to boost consumption

MANILA, Philippines - Greater structural reforms within Asia Pacific economies is needed to boost household consumption and ensure resilient, inclusive growth across the region amid rising uncertainty in global markets, according to a new policy brief from the APEC Policy Support Unit.

“Structural reforms enable an economy to be more flexible in reallocating resources across sectors. These reforms should also aim to increase the disposable incomes of households in order to encourage domestic consumption as a resilient engine of growth,” the APEC Policy Support Unit said.

At the same time, these structural reforms are expected to make economic growth more inclusive as they increase opportunities for women and rural communities, heighten competitiveness, and encourage innovation.

“Structural reforms not only contribute to productivity but they can also help to make growth more inclusive,” noted Emmanuel San Andres, an analyst with the APEC Policy Support Unit and co-author of the brief. “There are particular gains to be made when it comes to opening up economic opportunities for women and vulnerable communities, increasing competitiveness, encouraging innovation and improving social protection.”

APEC member economies have been implementing several initiatives under its 2011-2015 New Strategy for Structural Reform in its pursuit of a resilient and inclusive growth.

Among the reforms being pursued are those focusing on science and technology education, increasing competitiveness in the services sector, supporting small and medium enterprises’ participation in regional and global markets, and enhancing connectivity across APEC economies.

“Going forward, APEC’s structural reform agenda could focus on identifying new sources of growth, investing in human capital development, and improving infrastructure and connectivity,”  the APEC Policy Support Unit said.

Following the global financial crisis of 2008, trade growth across advanced economies and emerging markets has remained fragile and plagued by volatilities, the report  said.

The  region has seen a sluggish trade growth  in the past three years and this has not been contributing as much as it used to be to economic expansion.

“As trade growth slows down and GDP (gross domestic product) becomes less responsive to trade growth, economies need to find alternative sources of demand to sustain economic growth. In APEC economies, household consumption is the prominent alternative,” according to the report.

“This means policies that can give households more disposable income will be a boost to the economy. However, household income can only increase if real wages or entrepreneurial profits increase through increased productivity,’’ the report said.