The report cautions that if growth drops because of the current financial crisis ASEAN's falling unemployment trend could be reversed and unemployment rise from 5.7 percent in 2007 to 6.2 percent by 2009, with the more developed economies facing the largest relative increase. Combined with recent fuel and food price rises, this will threaten the most vulnerable people and could undermine social stability.

"The only way to sustain economic growth and social progress is to compete through innovation" the report says.

The report says productivity growth is critical to competitiveness at all levels. However, in recent years China has overtaken ASEAN in the level of output per worker, while the gap between India and ASEAN has narrowed markedly. This poses a serious competitive challenge, particularly for ASEAN's more developed members.