Asia exports’ sluggish showing a puzzle

Asia exports’ sluggish showing a puzzle

Friday, Oct 25, 2013

Fiona Chan

The Straits Times

The rebound among developed economies is fuelling a synchronised world recovery, but the good times have yet to start rolling for Asian exporters. Regional manufacturers should be working flat out to meet the increased demand in the United States, Japan and Europe, yet the opposite seems to be happening. Shipments from China, South Korea, Singapore and Taiwan fell last month from the year before, while exports from here for the first nine months of the year are now about 7 per cent lower than in the same period a year ago, according to data out last week.There are some mitigating factors: Declines in East Asia were partly due to fewer working days last month; dubious trade data also contributed to China’s weakness; and the cheaper Japanese yen likely weighed on its neighbours’ competitiveness.

But none of these is quite enough to explain the persistent sluggishness in the region’s exports, economists say. “Latest trade data from Asia shows only a muted pickup in export growth, which is somewhat worrisome. Exports have to rise far more vigorously if growth rates are to rise in line with our expectations next year,” said Deutsche Bank economist Taimur Baig.

HSBC economist Frederic Neumann noted that “for at least a couple of years now, the region has delivered disappointing trade data”, which is a “puzzle”.

“Demand in the West has picked up… with Europe emerging from its recession, Japan powering ahead and the US manufacturing sector perking up.”

He offers two related reasons for the discrepancy: rising local costs in Asia leading to a loss of export competitiveness, and stagnating world trade.

As Asian economies try to raise living standards and incomes, the price gap between their exports and goods produced locally in Western countries may be narrowing, Mr Neumann said.

He noted that in textiles and electronics, in particular, some production has recently been relocated back to the US but this may not apply across the board.

“Cost competitiveness is definitely a problem for Singapore, but it is hard to argue that is the case for Asia, which is still the world’s factory,” said Barclays economist Joey Chew.

Still, the pace of growth in global trade has clearly been slowing. This may reflect a shift in demand in developed economies – from imported goods like home furnishings to services such as “staycations”, said Mr Neumann. This theory lines up with what other economists have been saying.

“This growth recovery in the US, Europe and Japan is less import-intensive than usual, reflecting strategies to rebalance growth in many developed countries, and this is dampening global trade and thus export growth in Asia,” noted RBS economist Louis Kujis earlier this month.

HSBC economist Ronald Mann said on Tuesday that Taiwan and South Korea’s exports – which together account for about 4.6 per cent of global shipments – have displayed lower sensitivity to growth in the US, suggesting that Asia now benefits less from higher American demand than before.

But there is a third, and most optimistic, explanation: That advanced economies have simply not strengthened enough to lead to a significant bump in exports, which will come in time.

Economic watchers such as the World Bank expect the muted pace of growth to accelerate next year, which bodes well for trade- dependent economies in East Asia, it said this month.

Evidence of this is emerging in some trade data. Despite recording overall export drops last month, shipments from Singapore and China to the US climbed.

Digging into last month’s data also shows the situation in some economies is not so dire.

In Singapore, the 1.2 per cent export fall bettered analyst tips of a 2.8 per cent decline. In South Korea and China, after adjusting for working days and data distortions, exports would have risen instead of fallen, economists said.

But with exports still weak and unlikely to reach former heights of glory soon – if ever – Asian economies still have to rely on domestic demand for stable growth.

fiochan@sph.com.sg