Bangkok--Dec 16--Aziam Burson-Marsteller
At this point in time, it is hard to draw a clear picture of Asian export growth for next year. Asian exports experienced buoyant growth in the first half of the year, but since June growth has been slowing. The weighted average growth rate of Asian exports slowed to 22.5% y-o-y in September, still a healthy rate, but 9% lower than the peak of 31.5% in June. Of the nine Asian economies we follow, seven showed export growth slumps in September, while among the seven available trade reports for October, five are weakening . The region’s estimated export growth for October slowed to17.6% y-o-y. The across-region slowdown was predicted by our leading index of Asian exports. This is a weighted average of four statistics — the Baltic Dry index, the Singapore purchasing managers’ index, the US ISM import sub-index, and the Philadelphia semiconductor index. The composite index dipped to 17.4 in October from 19.1 in August.
Both global economic prospects and the regional export outlook have become more uncertain in 4Q. With the trade imbalance debate heating up in the US, and the euro economy struggling to grow, overseas orders from outside the region seem set to soften further. True, China’s economy, the largest overseas market for Taiwan and Korea, is still cruising at a high altitude, but the growth of its imports from Asia slowed sharply to 29% y-o-y in 3Q from 44% in 1H. Moreover, a GDP-weighted
average of the region’s floating currencies has appreciated by 3.7% y-o-y against the US dollar since September, which does not bode well for exports. Indeed, our subleading indicators are sending mixed signals. While the three statistics for global electronics demand continue to edge down, the Baltic Dry index, a leading gauge of shipping costs, rebounded sharply, and hit a record in November. As a result, the Lehman Asian exports leading index is pointing to a moderate downturn in 4Q. It suggests that although the region’s export growth peaked in 2Q, exports will likely keep growing at a decent rate in 2H. The latest encouraging news came from South Korea. Export growth, the economy’s main driver, picked up to 28% y-o-y in November after falling for five consecutive months. Meanwhile, this week, in an important development, Southeast Asian nations signed a free-trade agreement with China in Laos. The accord paves the way for a free trade zone in five years which may help boost intra-Asia trade by as much as 40% by 2010. China’s growing domestic market and increasingly strong intra-regional trade links should help the region’s export growth in the long run, even if mid-term visibility is somewhat clouded.
Our Glass-Half-Full View
Our glass-half-full view suggests a vigorous revival in Asian domestic demand in 2005. The 2005 outlook is more uncertain than usual, but we are taking a glass-half full view. Topping the list of uncertainties is the high oil price, as most models show that the damage to growth from high oil prices is twice as large for Asia ex-Japan as it is for the US, EU, or Japan. Encouragingly, the oil price is declining, especially in non-US$ terms, but it will need to fall below $40 in 1H 2005, based on our glass-half full view. Another risk is a hard economic landing in China. But here too there are encouraging signs that the economy is slowing down at a fairly measured pace and the balance of economic growth is improving, which we judge is reducing the risk of a hard landing. Yet another uncertainty is how much global demand for electronic products — the bellwether of Asian exports — will soften. Our own leading index points to further weakening of Asian exports, but not dramatically so, thanks to still very competitive currencies On balance, we judge that the downside risks are lessening, which should allow the region’s very loose policies to gain traction in 2005. The average short-term real rate for Asia ex-Japan has fallen into negative territory for the first time since 1995, and the regions fiscal policies are loose too. Meanwhile, Asia ex-Japan’s financial and corporate sectors, while far from perfect, are much healthier seven years after the Asian crisis; other positives include a rising middle class, rapid urbanization, and the emergence of a younger generation that is more willing to borrow and spend. Our glass-half-full view points to a vigorous revival in Asian domestic demand next year — a green light for Asian policymakers to allow significant currency appreciation, which will further rotate the mix of GDP growth toward domestic demand.
Satida
Aziam Burson-Marsteller
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