The Asia-Pacific region is at the forefront of the recovery from the global economic crisis of 2008–09. But despite the region's strong economic fundamentals, major challenges lie ahead in exiting interventions adopted in the crisis and building solid foundations for future growth. There is still ample risk of slow growth and persistent unemployment, reemerging global imbalances, and financial volatility.
The policies that stopped the economic freefall — huge stimulus packages in China, Japan, the United States and even small economies like Singapore, and massive financial bailouts in the West — were urgent, relatively easy to sell politically, and to a large extent forced by circumstances (particularly the fall of Lehman Brothers). They were deployed under extraordinary time pressures and have proved remarkably successful.
But sustained recovery will require tackling different problems, including but not limited to current account imbalances among the United States, China, Japan and other economies. U.S. consumers are not likely to drive world demand in the near future and Asian consumption and investment will have to emerge as new engines of growth. The policies used to fight the crisis, successful as they were in averting a larger calamity, did not directly address this transition and some have been counterproductive from a long-term perspective.
The best outcomes — inclusive, balanced, sustained (IBS) growth — will require shifting the policy mix from crisis intervention to structural reforms. These will need to change economic relationships within economies and among them. The mix will be varied and complex, addressing household and government finances, investment incentives, risk management, infrastructure, productivity, and other fundamental determinants of growth.
The policy mix should also foster new engines of growth in the Asia-Pacific by focusing the region's entrepreneurship, innovation and resources on common priorities. Concerted regional initiatives could, for example, target cleaner and more reliable energy; energy-saving transport and new vehicles; more efficient irrigation; critical public services and social safety nets; and products and services to meet the needs of ageing populations.