Koleoso Associates

Asia’s Economies Can Embrace Services to Boost Growth and Productivity. Manufacturing has long been the cornerstone of growth in the Asia-Pacific region, accounting for over half of global factory output. However, a new opportunity lies in transitioning towards modern, tradable services, which could serve as a powerful catalyst for enhanced growth and productivity. As countries evolve economically, there is a natural progression from agriculture to manufacturing and, ultimately, to services. Today, nations like China, Indonesia, Korea, and Thailand are witnessing this shift, with services now engaging nearly half of the region's workforce up from just 22 percent in 1990. This trend is poised to accelerate, driven by the burgeoning international trade in modern services such as finance, information technology, and business outsourcing. Policymakers must recognize the significance of this shift. In October 2024 Asia-Pacific Regional Economic Outlook emphasizes that modern services not only boast higher productivity but also offer substantial growth potential when supported by appropriate policies. While manufacturing productivity in Asia is nearing global benchmarks, the services sector presents greater opportunities for improvement. Notably, productivity in areas like finance and business services already outpaces that of manufacturing, with labor productivity in financial services being four times higher. To capitalize on these advantages, countries must create conducive environments for service sector growth. Unlike manufacturing, which has benefited from low trade costs and global integration, the services sector faces considerable barriers, including restrictions on foreign entry and regulatory hurdles. Addressing these obstacles is crucial. Furthermore, as workers transition from agriculture and manufacturing to services, equipping them with the necessary skills becomes imperative. With the rise of digital technologies, ensuring access to technology and comprehensive training programs will be vital to develop a digitally adept workforce capable of leveraging innovations like artificial intelligence. As many Asian countries confront the challenges of rapid aging and slowing growth, embracing a "services-led economic model" will be essential for sustaining prosperity and enhancing productivity in the years to come.

Reflection: Three Policy Priorities for a Resilient Recovery. To build a stronger post-pandemic economy, we must adopt strategic priorities that secure economic stability, support vulnerable populations, and foster long-term resilience. Strong, Coordinated Policy Action Unified, decisive policies across government and global partners are essential to address immediate challenges and establish sustainable growth, focusing on reforms that enhance resilience. Scaling Up Social Spending Increased investment in healthcare, housing, and social support strengthens societal resilience and ensures a more inclusive recovery, stabilizing and uplifting communities for future growth. Workforce Reskilling and Educational Support Expanding reskilling initiatives and supporting educational recovery will equip workers and students with essential skills, aligning with future job markets and closing educational gaps for an adaptable workforce. These priorities are essential to drive a resilient, inclusive recovery and position economies for future challenges.

Global growth, while stable, is on an underwhelming trajectory. A reality that demands urgent attention and proactive strategies. At just 3.2% for the coming years, this pace falls short of unlocking the economic potential needed to drive widespread prosperity. Beneath this seemingly steady outlook, stark disparities highlight the need for decisive action: while the "U.S". sees moderate improvement, major economies in "Europe" face downward adjustments, and vital regions in the Middle East, Central Asia, and sub-Saharan Africa grapple with setbacks from commodity disruptions, conflict, and extreme weather. This modest growth outlook should serve as a call to action for leaders, investors, and policymakers to champion reforms that will elevate economies beyond this plateau. With thoughtful, targeted investment in technology, infrastructure, and structural reforms, we can convert this stable yet unremarkable growth forecast into a pathway toward dynamic, sustainable prosperity. The world is at a pivotal moment, let us seize it to forge an economic future that is both resilient and transformative.

Strengthening Growth Achieving sustainable growth and economic diversification in the Middle East, North Africa (MENA), and the Caucasus and Central Asia (CCA) demands the development of an agile financial sectors equipped to mobilize resources effectively for the private sector. Yet, these regions face formidable obstacles: underdeveloped financial markets, monetary instability, and weak legal and regulatory frameworks that stymie progress. A critical barrier is the entrenched influence of state-owned banks, which stifles competition and hinders innovation. Strategic reforms to increase market competition, cut red tape, and lower entry barriers are paramount. These initiatives could elevate real private sector credit by over 5% and boost real GDP per capita by nearly 2% within five years. Expanding financial markets by attracting institutional investors and building healthy government bond markets can further enhance financial integration and invite more nonresident investment. This comprehensive approach will not only fortify financial systems but lay a resilient foundation for sustainable growth, positioning these economies to unlock the full potential of their financial sectors and drive enduring prosperity across the region.

The October 2024 World Economic Outlook report, titled Policy Pivot, Rising Threats, highlights a period of stable yet underwhelming global growth, projected at 3.2% for 2024 and 2025. Beneath this stability, U.S. growth upgrades are offset by downgrades in major European economies. Emerging markets face downward revisions due to commodity disruptions, conflicts, and extreme weather, with emerging Asia seeing growth due to semiconductor demand and AI investments, particularly in China and India. Inflation is expected to decline, yet services inflation remains high, necessitating sector-specific monetary responses. Risks include policy uncertainty, potential financial volatility, and geopolitical tensions. A "policy pivot" suggests tighter fiscal policy is needed, along with strategic structural reforms to lift medium-term growth, while multilateral cooperation becomes crucial to address global challenges and promote sustainable growth.

The IMF’s Finance & Development magazine, in its compelling September 2024 feature “Working From Home Is Powering Productivity,” presents a transformative vision of remote work's impact on the global economy. Since the pandemic, remote work has surged fivefold, igniting unprecedented productivity gains, fueling economic growth, and promising expansive social benefits. The article reveals how remote work's flexibility has broken traditional boundaries, allowing businesses to tap into a richer, more diverse talent pool, cut operational costs, and offer employees an enhanced work-life balance. These changes not only elevate job satisfaction but also boost performance, suggesting that remote work could be a cornerstone of future economic resilience. If embraced fully, the ripple effects could be profound—reshaping labor markets, driving innovation, and securing long-term productivity gains across multiple sectors, positioning remote work as a powerful driver of economic transformation in the years ahead.

Navigating the Evolving Geoeconomic Landscape, outlines key challenges and economic prospects for the Middle East, North Africa (MENA), and Caucasus and Central Asia (CCA) regions: Geoeconomic Pressures: The global economic landscape is shaped by rising geoeconomic fragmentation, with MENA and CCA regions facing frequent conflicts and climate-related shocks. This is contributing to subdued near-term growth, with MENA economies projected to grow by 2.1% in 2024 before a rebound in 2025. CCA economies are set to maintain steady growth at around 4.3%. Oil Sector Dynamics: MENA oil exporters face narrowing fiscal surpluses due to voluntary production cuts and increased public investment. Oil importers, burdened by debt and economic uncertainties, show varied growth across countries, with conflict and limited financing options posing additional challenges. Structural Challenges: In both regions, employment issues—especially for youth and women—persist. Additionally, limited private sector credit access and undeveloped financial sectors restrict capital investment and productivity growth. Policy Recommendations: To counter these trends, the IMF emphasizes accelerating structural reforms, especially in governance and labor markets. Financial development policies, enhancing private investment, and fostering fiscal sustainability are critical for long-term stability.

The report on the Middle East and Central Asia highlights a troubling decline in medium-term growth for the MENA and CCA regions over the past 15 years. Key findings include: Growth Decline: Growth in these regions has lagged behind other emerging markets. Employment growth, a previous driver, has decreased, while other regions benefited more from capital investment and productivity gains. Demographic Pressures: With changing demographics, policies must target labor market improvements, particularly for youth and women in MENA. Higher female participation could significantly boost output. Capital and Productivity Needs: The regions suffer from low capital per worker and slow productivity (TFP) growth, hindered by state-dominated financial sectors, conflicts, and climate shocks. Policy Recommendations: The report suggests increasing digitalization, diversifying trade, and reducing the state footprint to drive productivity. Encouraging private investment and adapting to climate impacts are also emphasized. In summary, stresses policy shifts toward inclusivity, digitalization, and economic diversification to reverse the declining growth trend and boost productivity in the MENA and CCA regions.

"Unlocking European growth and competitiveness requires addressing,.....". Europe’s income per person lags behind the US by one-third, driven by lower productivity, as highlighted in Mario Draghi's recent competitiveness report. The core issue lies in firm-level performance disparities, particularly between leading companies in the US and Europe. Since 2005, US tech firms have seen productivity soar by nearly 40%, while European counterparts remain stagnant, largely due to weaker R&D efforts. Beyond large firms, Europe also suffers from low business dynamism. Fewer startups scale into large, productive companies, with fast-growing US firms employing six times more people than in Europe. Two major factors inhibit this growth: the EU’s fragmented market, which limits economies of scale, and restricted access to finance, with Europe’s venture capital markets only a fraction of the US. Addressing these challenges requires bold reforms at the EU and domestic levels. Deepening the single market, expanding access to venture capital, and fostering flexible labour markets will drive innovation, unlock productivity, and help close the income gap with the US, securing Europe’s long-term prosperity. Like Us/Follow Us