Wednesday, March 04, 2009

Details Of Collapse In Asian Exports

  • All major economies have witnessed at least 1 month of double-digit export contraction with Japan, S.Korea, Taiwan, Singapore, Philippines, Indonesia, Vietnam witnessing contraction over 20% for at least 1 month. Asian exports have fallen more during Q4 2008 than they did during 1997-98 or 2001. 6 months after peaking in July 2008, exports contracted more than a third and 40% cumulatively.
  • Export, production and consumption free-fall occurred in a synchronized manner b/w the West and Asia compared to the West 'leading' Asia in 2001. This was exacerbated by sudden crunch in trade finance in Sep/Oct 2008, high inventory build up in U.S. (which is now coming down) and large base effects.
  • By Dec 2008, every country in Asia had contracting exports, a trend that was delayed by boost from commodity prices to Indonesia, Malaysia, Thailand, and Vietnam. Asia ex-Japan exports contracted by 3% y/y in Nov 2008 (first decline since March 2002). Ex-China and India, exports dropped by 3.5% y/y. Export growth slowed sharply in Q4 2008 on worsening G-7 recession, EM slowdown and global tech and semi-conductor slump.
  • Asia ex-Japan's total exports grew 19.3% in 2008 led by exports to EMs. Exports to other regions which have been strong growth markets in recent years (ex-US, Europe, Asia) grew 31.2% compared with 5.6% and 16.2% to US and Europe.
  • Easing commodity prices have reduced import prices sharply while export prices have been easing relatively more steadily. export and import volumes have been contracting at a similar pace since mid-2008. Improvement in terms of trade has been a plus for nominal trade balance but the sharply narrowing gap between the real export and import growth is having a negative impact on real trade balances which is contracting on y/y basis esp. if China is excluded.
  • Baltic Dry Index shows significant slowdown in shipping b/w Asian countries and b/w Asia, G-3 and EMs like Latam, Middle-East. Much of intra-regional trade consists of parts and components for final export to the G-3. China’s imports from Asia fell by 23.8% y/y in Dec 2008, the first contraction since Nov 2001, affecting Philippines, India, Taiwan and Hong Kong. Asia's exports to China have contracted much more than exports to U.S. Also, Asia's exports to China have fallen much more than China's exports to US and EU. This is due to slowing domestic demand and in China.
  • Since Asian exports have large import content, imports are also slowing. Countries with higher import content will see lesser risk to the trade balance and trade contribution to growth. Slowing domestic demand is also reducing intra-Asia exports.
  • By reducing export prices, profit margins are shrinking. Export sector job losses and slower income growth are accelerating posing risk of social instability in some countries and creating excess capacity.
  • Some govts are now extending support for export sector via fiscal stimulus packages by easing credit cost, trade finance and tax cuts to protect employment. Central banks are also favoring currency depreciation to support exports.
  • As exposure to exports has risen from 36% of GDP in 1998 to 46.7% in 2007, so has the export contribution to growth and its spill-over effects on domestic activity. Domestic demand in Asian countries will not fully offset export slowdown since exports are significantly tied to industrial production, domestic (fixed asset) investment, consumer spending--> all of which are now slowing in most countries.

  • Outlook:
  • As global trade contract 3% in 2009, Asian exports will continue to contract through most of 2009 and for much longer and greater extent than in 2001. Sluggish U.S. and global recovery and global business investment and manufacturing activity pose further risk.
  • Net exports will remain a drag on real GDP growth and outstrip any gains in real income from easing commodity prices, whose effect will also fade ahead.
  • Most key Asian countries will face 10%-20% decline in exports in 2009 or 20-40% in worst scenario.
  • Exports to U.S. (17% of total) will turn negative ahead; exports to EU will slow further; exports to rest of the world will decline to single-digits.
  • Exports might contract by 10-20% y/y/ through mid-2009.
  • Commodity importers (Philippines, Singapore, Thailand) will see improvement in trade a/c and domestic demand (income effect) while commodity exporters (Indonesia, Malaysia) will witness slowdown in exports, domestic demand. EM Asia tech indicator below 2001 levels.

  • Overview of Individual Countries:
  • China: exports contracted by 17.5% y/y in Jan, steepest in 13 years and the third month of contraction. Imports contracted even more (43.1%, worst since data begun being collected in 1995).
  • Japan: Exports posted the sharpest plunge on record in Jan falling 46% yoy after 35% yoy fall in Dec-08. Imports fell 32%.
  • Singapore: exports plunged -34.8% in Jan-09 after dropping -21% y/y in Dec-08 (biggest drop in at least 22 yrs) with a consecutive 9 months of decline. Electronic exports fell 38.4%, non-electronic exports also decreased -32%. Exports to US declined -50%, to China plunged -54%, to Malaysia fell 40%.
  • Taiwan: exports fell 44.1% in Jan 2009 following a record drop of 41.9% in Dec 2008 as demand by China fell significantly.
  • Malaysia: exports dropped 14.9% y/y in Dec 2008 after falling 4.9% in Nov as electronics exports fell 26% and exports to U.S. fell 30%.
  • South Korea: Exports contracted 32.8% y/y Jan 2009.
  • Thailand: exports dropped 14.55% y/y in Dec-08. Exports fell 17.7% y/y by value and 20.5% y/y by volume in Nov-08, biggest decline in 17 years.
  • Philippines: Exports fell 40.4% y/y, steepest since 1987 led by a contraction in electronics shipments and weaker sales to China, Japan and the U.S.. Electronic exports declined 47.6%.
  • Indonesia: Exports decreased 20.6% y/y in Dec 2008, biggest annual slide since 2001.
  • Vietnam: Exports plunged 24% while imports tumbled 45%.
  • India: Exports fell -1.1% y/y in Dec-08, third consecutive decline after falling 9.9% in Nov. Earnings of IT exporting companies hit as U.S. (financial) companies a/c for 60% of service exports and these firms are slowing their IT spending.
p/s photo: Tyas Mirasih

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