APEC Sees Growth Risks as Moody’s Says Outlook Challenging

Global growth will probably be slower and less balanced than desired, ministers from the Asia-Pacific Economic Cooperation member economies said as they agreed to refrain from raising new barriers to trade and investment.

The world economy is too weak and “risks remain tilted to the downside,” ministers from the 21-member grouping said in a statement in Bali yesterday. The Asia-Pacific region will have a harder time preserving growth, given volatility in financial markets and a slow recovery in advanced nations, Moody’s Investors Service said.

“What we are sensing is that there is a change in the economic cycle and sustaining the levels of economic growth that we have seen in the region over the last five years is going to become more challenging,” Michael Taylor, Moody’s chief credit officer for Asia, told reporters in Bali. The region still has a “long way to go” to shift from export-led growth to that driven by domestic demand, he said.

A slowdown in China and India is reverberating across the region with the Asian Development Bank forecasting expansion at a four-year low in 2013, putting pressure on policy makers to bolster their economies. The Group of 20 countries repeated their concern last month that stimulus pullback in developed nations may prove damaging to global markets.

Protectionist Policies

APEC members must work to prevent protectionism, and improve infrastructure to facilitate trade and investment, Indonesian President Susilo Bambang Yudhoyono said in a speech in Bali today to about 1,000 business executives. Giving in to protectionist tendencies will make things worse for all countries, Singapore Prime Minister Lee Hsien Loong said at the same event.

“While overall confidence in growth from Asia-Pacific operations remains undiminished, we see many of the uncertainties associated with slow growth, previously limited to the more developed markets, now challenging developing economies as well,” Dennis M. Nally, chairman of PricewaterhouseCoopers International Ltd., said in a report released at APEC that surveyed more than 470 senior company officials in the region.

TPP Push

Trade ministers are seeking momentum during the Bali meetings on a 12-nation trade pact as concessions sought by countries threaten to delay completion further from the end of 2013. The Trans-Pacific Partnership, which involves countries such as the U.S., Australia, Japan, Malaysia and Vietnam, would link an area with about $28 trillion in annual economic output.

“The pattern of aggregate demand is changing in the region, but it is not significant enough to drive growth at the same pace prior to the crisis,” the Pacific Economic Cooperation Council said in a statement to APEC ministers yesterday.

“While investment has been increasing, some of this is due to the very cheap cost of capital during this extraordinary period,” the council said in the statement. “As long-term interest rates return to normal, more needs to be done to improve the investment climates in our respective economies.”

Speculation over the future of the U.S. Federal Reserve’s quantitative easing program has whipsawed global assets since May, when Chairman Ben S. Bernanke first signaled cuts may start in 2013. Four months of rising bond yields around the world and reduced capital flows into emerging markets were thrown into reverse by the Fed’s surprise decision in September not to pare its $85 billion in monthly asset buying.

Malaysia Risks

China needs more economic and financial reforms, while structural changes in Japan are essential for the country to grow, Taylor from Moody’s said. For Malaysia, Moody’s senior analyst Christian de Guzman said risks are tilted to the downside.

Prime Minister Najib Razak raised subsidized fuel prices for the first time since 2010 last month and has said he will delay some infrastructure projects, seeking to contain the budget gap after Fitch Ratings cut Malaysia’s credit outlook to negative in July. The government is considering a goods and services tax in the 2014 budget due Oct. 25.

“While we do have a stable outlook, there has been deterioration in Malaysia’s credit profile over the past five, six years,” de Guzman said in Bali yesterday. “If the measures announced in the budget are not strong enough to move the needle, perhaps we may reconsider the rating. At the same time, we do want to recognize that there are important strengths in Malaysia as well.”

Open Markets

APEC ministers said they will recommend their leaders extend through the end of 2016 a commitment to combat protectionist measures and roll back such policies that exist.

“We reaffirmed our commitment to keep markets open and to refrain from raising new barriers to investment or to trade in goods and services, imposing new export restrictions, or implementing WTO-inconsistent measures in all areas, including those that stimulate exports,” the ministers said yesterday.

Sixty-eight percent of chief executive officers in the Asia-Pacific region plan to increase investments next year, with China, the U.S. and Australia among top destinations over the next three to five years, the PricewaterhouseCoopers report showed.

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