United Nations’ economists are calling on Asia Pacific economies to move ahead with reforms, especially targeting widening income and wealth inequalities despite decades of economic growth.
Economists with the Economic and Social Commission for Asia and the Pacific (UNESCAP) said regional governments need to address growing income inequalities, which have increased markedly since the 1990s.
Income inequalities are a problem
Hamza Ali Malik, a UNESCAP macroeconomic policy economist, said income inequalities have risen by 30 percent in the past three decades.
“This is a significantly sharp increase,” Ali Malik said. “Same was the case with the wealth indicators. The top 1 percent account for more than half the total household wealth in these economies: India, Indonesia, Russia and Thailand. That is fairly high. It sets up a role for stronger fiscal policies, for redistribution purposes.”
Higher taxes are one solution
He said the key lies in policy reforms, such as taxation, especially raising the low levels of personal income tax “through income redistribution to play a role in mitigating these inequalities.”
The concerns come against the backdrop of a sound regional economic outlook despite global uncertainties, according to UNESCAP and the Asia Development Bank (ADB).
Asia Pacific still has potential for growth
UNESCAP Executive Secretary Shamshad Akhtar said the Asia-Pacific remains a key center for global economic growth.
Akhtar said resilient domestic demand and government policy support had led to regional developing economies “growing at a steady pace of 4.9 percent” in 2016.
“Despite a sluggish global economy and weak trade growth, in fact the Asia Pacific region continues to outperform the rest of the world and has arguably been an anchor of stability for the struggling global economy,” Akhtar said.
The outlook for 2017 remained “broadly positive,” with stronger growth elsewhere in Asia offsetting a slowing in China as it rebalances toward domestic growth, she said.
Problem areas
But the UNESCAP report said commodity exporters, such as Mongolia, Kazakhstan, and the Russian Federation were continuing to face “economic and fiscal adjustment” because of the lower energy prices in recent years.
A positive sign lay in Russia’s economy, which after two years of contraction, is stabilizing and is forecast to report a 1 percent growth rate in 2017 according to independent economists.
The ADB, in a separate release, was also positive about the region’s outlook.
“Asian economies continue their robust expansion in the face of global economic uncertainties,” said ADB’s deputy chief economist, Juzhong Zhuang.
Stability in the economy found across Asia
The ADB said economic growth in developing parts of Asia remained broadly stable although a slight slowdown in India had trimmed the outlook for 2016.
“Structural reforms to boost productivity, improve investment climate and support domestic demand can help maintain growth momentum into the future,” Juzhong said.
Globally, the ADB was also positive.
“Robust consumer spending supported the U.S. economy, with supportive monetary policy and improved labor markets fueling growth in the euro [currency] area,” the ADB said in an outlook report.
Strength in Japan
Japan’s economic expansion was buoyed by strong exports despite a stronger local currency, it added.
But UNESCAP also pointed to uncertainties coming as the U.S. central bank, the Federal Reserve, moved to raise U.S. interest rates by 0.25 percentage points to a range between 0.50 and 0.75 percent, only the second such move since the 2008 financial crisis.
Areas of concern
Independent analysts say the U.S. rate increase may create issues for China’s economy as Chinese investors seek to move funds out of the country to the U.S. market.
UNESCAP’s Akhtar said for Asia, other concerns lay in the impact on the Euro zone from negotiations over Britain leaving the European Union, the so-called Brexit.
Another area still to be clarified lay in the policies under the new administration of President-elect Donald Trump.
Economists say there are also concerns over a trend towards rising trade protectionism affecting investment, a major driver of domestic growth. Overall investment had failed to pick up as a whole despite easing financial conditions.