Outlook on the regional integration trends in APAC

Asian Economic Integration Report 2022 estimates that the region's intra-regional trade share increased to 58.5 percent in 2020 from 57.5 percent the previous year

FREMONT, CA: Despite the Covid-19 pandemic, regional integration trends in the Asia-Pacific area remained strong, despite an initial pause during the first wave, according to a report by the Asian Development Bank (ADB). Asian Economic Integration Report 2022 estimates that the region's intra-regional trade share increased to 58.5 percent in 2020 from 57.5 percent the previous year, owing primarily to China's early recovery, which resulted in a jump in its exports. However, excluding China, intra-regional trade share fell slightly to 38.2 percent in 2020, down from 38.4 percent the previous year. After bottoming out in mid-2020 during the first wave of the pandemic, Asia's merchandise trade recovered faster than projected in 2021. According to the ADB, trade growth soared to 19.7 percent in June 2021 before slowing to 9.7 percent in September, owing to the release of pent-up demand fueled by stimulus packages and global economic recovery.

In terms of foreign direct investment (FDI), the region has been rather durable, with a drop of 1.3 percentage points to 53.6 percent in 2020, compared to a global average decline of 34.7 percent. East Asia and South-east Asia were the region's top receivers, attracting about 80 percent of Asia's inward FDI, according to the Asian Development Bank. The ADB added that while FDI is increasingly vital for developing digital services trade in the area, digitalization is fundamentally changing how businesses operate and invest abroad, with less need for physical presence and faster transaction speeds. It was stated that between 2003 and 2020, 24 percent of FDI entering the region went towards digital services on average, with East Asia and South Asia being the leading destinations. An accommodative macroeconomic policy environment and expanding vaccination rollouts bolstered the economic recovery and financial conditions in 2021, according to the ADB, but significant uncertainties remain. Financial markets were far calmer in the first half of 2021 than they were in the entire year of 2020, according to the report.