Asia in ‘deep’ trade recession, says ANZ Bank

August 13, 2015

SINGAPORE – ANZ Bank says Asia is experiencing a deep “trade recession” which is likely to be enduring, prompting the bank to make significant downward revisions to its 2015-17 growth forecasts. 

“Indeed, the surprise RMB devaluation announced by China and the VND band widening announced by Vietnam speak of the economic stresses that are arising from this unusually depressed period of global trade and a global economic backdrop that remains tepid and uneven rather than synchronised and ascending,” ANZ says.
“We had been expecting a smooth transition in global growth drivers away from the slowing Chinese economy and towards the US household sector over 2015-16. Alas, it was not to be.

“Income fundamentals are improving in the US, but the responsiveness of Asian trade to this dynamic has been de-correlated and weak.  China’s economic data remains weak, and though the RMB devaluation is a broad announcement with many objectives, one of those is clearly additional easing to help stabilise Chinese growth.

“This economic equivalent of relay baton drop has resulted in a further ongoing slowdown in global trade and all of Asia is now experiencing outright negative year-on-year export growth.

“This is a remarkable outturn relative to Asia’s strong historical trade performance, and is suggestive of a further ‘break’ in the traditional determinants of the Asian trade multiplier.

“Structurally lower potential growth rates among major economies, unfavourable demographic trends and under-investment in capacity are not sufficient explanations for this breakdown.

“The elasticity of Asian trade to global GDP used to be close to 2.9 for Asian trading nations before the 2008-09 crisis, but has been flat at around 1.5 since 2008.”  www.live.anz.com (ATI).