ASIAN ECONOMY Slowdown in Asian Exports Won't Last, Economist Says
May 17, 2011
Could you put the weak export performance in Asia over the past months in context? For a start, there has been a confluence of events whereby a large number of countries in Asia experienced simultaneously a substantial drop in their export growth. Asian economies have experienced equally substantial drops in their export performance in the past. But nobody noticed because it didn't happen simultaneously. The second point why I refuse to get quite upset about (the export picture) is because some of the simultaneous export-growth decline is explained by cyclical forces. Cycles are cycles, one year you're up X amount and (other) years you're down. And the third point is the experience of individual countries varies very widely. If there is a unifying theme in 95-96, it's that there isn't any. Are you concerned about a loss of competitiveness as a factor behind the export-growth slowdown? Unfortunately, the way in which competitiveness can be discussed is only in quantifiable terms. It really boils down to a number of indices, and the most commonly used one is the real effective exchange rate. Our own (statistics) point to a rather variable performance. In the cases of Hong Kong, Taiwan and Singapore, the (exchange-rate) indicators are either flat or falling, which means these countries are either staying roughly as competitive as they have been before or, in the case of Singapore, the competitiveness is increasing. For the rest of the economies the trends are upward, but even here, the speed, the degree and the timing varies enormously. So simply looking at the real effective exchange rate, I would have said to myself there is something here to be concerned about for at least six or seven of the economies we cover. However, in the recent cyclical phenomena, or in the recent deceleration of export growth, if in fact I was to blame the poor performance of exports on a collective loss of external competitiveness -- very crudely, we are becoming more expensive in comparison to everybody else -- then this does not explain a simultaneously very sharp deceleration in import growth as well. So there are a large number of other factors at play here. Which countries are facing problems because of slowing export growth? The obvious two places are Malaysia and Thailand because in the course of 2010 they both had very sharp increases in their current-account deficits driven primarily, but by no means exclusively, by their trade balances. And in the case of Malaysia specifically, very poor performance on the services side. In the course of 2011 in the case of Malaysia, the trade balance is continuously improving. And in the case of Thailand it looks as if both the current deficit and the trade deficit have now stabilized as the economy slows down considerably. In fact, a lot of countries had been trying to slow down their economic growth, although perhaps not by as much as is being forecast. How has that affected trade? There are at least five economies in the region that either have man-made slowdowns or cyclical slowdowns that do affect the overall export-import performance of the region. Specifically, China, Malaysia and Thailand, their economies are slowing down in the course of 2011 -- and in the case of China, slowing down since 2008 -- because the authorities wanted to control inflation (and/or) the current account deficit. You had two economies that were slowing down because of pure cyclicals -- Korea and Singapore -- so you have, out of nine or 10 major regional economies, five of them -- including some of the most vibrant and biggest economies -- slowing down in the course of 1995-96. Thirty-five percent of all imports and exports in the region are intraregional -- excluding Japan. If five of the biggest economies in the region are slowing down, of course their imports from everybody else are also decelerating. Of course, their imports are our exports. It used to be said that when the U.S. sneezed Asia caught a cold. I wonder whether Asia can now infect itself? Correct. Now strictly speaking we should be doing very nicely because if one looks at the second quarter of GDP (gross domestic product) growth in the U.S. it's doing very nicely -- if anything it is doing too well. And this still has had no apparent impact on Asia, precisely because our cycles are being progressively decoupled from their cycles, meaning the G-7. Have countries such as Thailand been having difficulties because they are becoming less competitive in labor-intensive industries? Again, this is a matter of what I consider to be misperception. The composition of Thailand's exports in the last six years has changed quite dramatically. Not as dramatically as Indonesia in the '80s, but it is not true that things have frozen in time. Textiles, footwear and jewelry, which accounted for about 25% of all exports at the beginning of this decade, have now come down to about 17-18%. And electrical apparatus and computer parts now account for about 20-25% from about 15% at the beginning of 1990. Of all the Thai exports, the one growing fastest in 2011 is -- guess what? -- electrical apparatus and computer parts. The same thing with the Philippines -- exceptionally strong growth of electronics and component parts throughout 2011. So there are two countries that are bucking the trend (of a sharp downturn in the electronics sector). Indisputably, the value added and the type of goods that Thailand and the Philippines are exporting are unlikely to be of the same degree of value added and sophistication of Korea, Taiwan and Singapore. What are you expecting for next year? The P.R.C. cycle has now bottomed and flattened out, so next year you can look forward to steady growth with low inflation. The Malaysian economy would have also bottomed out by the first half, possibly, of 2012 and Thailand would have done likewise but considerably earlier, possibly the first quarter of 2012 because it also started its credit and financial squeeze earlier. Korea also would have bottomed out by the end of this year. We will have seen the worst in Korea by Christmas.
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