More investment in social safety nets and infrastructure projects could become new sources of economic growth for Asian countries, as Western demand is unlikely to recover to precrisis levels, says a new report by the UN Economic and Social Commission for Asia and the Pacific (Escap).
Noeleen Heyzer, UN under-secretary-general and executive secretary of Escap, yesterday said strengthening social protection, promoting agricultural development and investing in infrastructure could generate new markets for Asia.
She was speaking at the launch of an Escap report that followed an economic and social survey of the Asia-Pacific.
With 950 million people in poverty, the Asia-Pacific has a lot of room for expanding aggregate demand and thus reducing dependence on external consumption, Heyzer said.
However, there is no one-size-fits-all regarding social investment. Some countries have implemented cash transfers to the poor, food for the poor or income-guarantee schemes. Social investment can also be made in such areas as education, healthcare and rural transportation systems, she said.
Heyzer said she did not think Asia could largely rely on traditional export markets like United States and Europe.
"The business-as-usual scenario is difficult, as the growth of Western demand is unlikely to recover to precrisis levels," she warned.
She said wide infrastructure gaps in the region could provide additional potential for generating demand in the region. Infrastructure investment should take place in rural areas, such as rural roads.
Hardware (roads and rail) and software (people) connectivity between countries in the region would also make development more inclusive and sustainable.
Heyzer said even though developing Asian countries had experienced a V-shaped rebound this year, the recovery remained fragile.
She expressed her concern about a threat of inflationary pressures and asset bubbles. Inflationary pressures have returned in many countries and must be managed carefully, due to the weak growth environment, she said.
"The response should be to manage pressures while guarding against premature withdrawal of stimuli," Heyzer said.
The Escap report said capital-control measures like taxes on short-term inflows might be an option, in order to prevent financial calamity resulting from short-term speculation on exchange rates and stock markets and the possibility of sudden outflows.
The survey forecast the Chinese economy could expand 9.5 per cent this year, followed by India and Singapore, with growth rates of 8.3 per cent and 7 per cent, respectively.
Thailand could achieve economic growth of 4 per cent, but this has been diluted by the political uncertainty, it said.
"We're optimistic that economic conditions could be much better, as the political conflict is going to be resolved," said Nagesh Kumar, Escap's chief economist and director of its Macroeconomic Policy and Development Division.
He was referring to easing political tensions following agreement between the Thai government and anti-government protesters on a peaceful resolution of the recent strife.