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With the slump in oil and commodity prices, export growth across Asia has tumbled so far this year, and outlook in the coming quarters very much depends on the strength of global demand, analysts have said.
The latest monthly export figures have been dire, with regional exports falling by 7.7 percent on-year in July in U.S. dollar terms. This was the ninth consecutive monthly fall, and marks by quite some way the worst run of data since the global financial crisis in 2008. A few countries have now reported August data, and the indications are that the export downturn deepened further last month.
The conventional view was that Asia is losing export competitiveness as wages rise, but HSBC Global Research said changes in competitiveness cannot fully explain Asia's current export malaise. The region is after all moving up the value-added ladder by exporting more advanced products, so the decline in exports may suggest a much deeper structural challenge for Asian economies. HSBC thus feared that the worst is not over and see limited scope for any quick rebound in exports.
Capital Economics, the independent macroeconomic research firm, pointed out the slump in oil and commodity prices account for most of the decline in Asian exports this year. For a country like Indonesia, where commodities account for around 60 percent of total exports, it is no surprise that exports have slumped. However, exports are also falling at, or close to, double-digit pace in economies liked India, Singapore and the Philippines, which are not major commodity exporters.
While the drop in commodity prices did not have a direct impact on non-major commodity exporters, it weakened the terms of trade of commodity exporters and in many of them has fed through to a slowdown in domestic consumer spending and investment, which in turn hit their demand of exports from other Asian partners.
Other factors are also at play in causing the weak performance of Asian exports. Capital Economics said part of the reason for this has been a strong U.S. dollar, which has pushed down the dollar value of Asian exports that are priced in other currencies. In South Korea, for example, where the won has fallen against the U.S. dollar by around 15 percent over the past year, exports in local currency terms are actually expanding in year-on-year terms.
The weakness of global demand has also played a part. Looking at export data in volume terms, which strips out the effects of price and currency movements, Capital Economics observed exports from Asia are still falling, albeit not as steeply as they are in value terms.
Other than the potential rise in global demand toward the year- end, Capital Economics also believed the effects of the sharp fall in global commodity prices during the second half of last year will provide a much weaker base for comparison in the coming months, which means year-on-year export numbers should get a boost in coming months. While a return to the double-digit rates of export growth that were the norm before the global financial crisis is unlikely, the numbers should at least stop contracting, said Capital Economics.
