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07 Jun 2013

Asian exports wobble

by Frederic Neumann

Co-Head of Asian Economic Research, HSBC

Asian exports wobble

Japan’s reflation will have a stabilising impact on regional export and output growth

The Asian region has shown steady export growth. However, new export orders have contracted this year, according to HSBC’s purchasing managers’ indices, suggesting that export shipments will turn down too.

Part of this can be put down to the vagaries of the Asian electronics cycle, with new product launches – or the lack thereof – increasingly affecting export data, especially in northeast Asia. But, a deeper look shows that softer investment activity in the US, Europe and Japan is partly to blame.

With data from Europe and China still disappointing, a key question is whether Japan can fill the void

A look at a graph of capital-goods orders for advanced economies against export volume growth shows the former still contracting on an annual basis in emerging Asia. That suggests continued headwinds for exports. The good news is that numbers for the US have recently improved. While Europe may remain disappointing for a while, Japan’s investment cycle should also start to pick up over the second half of the year.

So while the outlook for Asian exports remains challenging in the short term, some improvement should occur towards the middle of the third-quarter.

Slowing investment activity among the major economies, including China, appears to have surprised producers. As a result, manufacturers are sitting on relatively high inventories, prompting them to curtail output. The inventory index compiled from our regional PMIs™ usually fluctuates below 50 and rarely points to excess inventories: however, it hit its third-highest level ever in April, underlining the back-up in Asian stock levels.

With data from Europe and China still disappointing, a key question is whether Japan can fill the void. Unfortunately, the economy isn’t large enough to offset slack elsewhere fully. Japan’s reflation will have at least a stabilising impact on regional export and output growth but so far, the spill-over to the rest of the region has been disappointing.

Despite a notable acceleration in Japanese GDP growth in the first quarter of 2013, the bounce bypassed the region. This is not because of lack of consumer spending (households, in fact, have started to spend) or the tumbling yen but because corporate investment is still lacklustre despite the recent improvement in the growth outlook. However, this should change: its persistence is, indeed, a yardstick with which ultimately to measure the success of the new government’s ‘Abenomics’.

Exports to Japan have continued to contract, with the exception of exports from Taiwan and the Philippines. But once investment kicks in – helped by a generous fiscal stimulus that was launched in April – shipments should improve and among the countries likely to benefit especially are the Philippines, Indonesia, Thailand and Malaysia. So among the wobbles, there are also some bright spots.

This research was first published on 30 May 2013.
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