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Asia exports, key growth driver, down in 2011: IMF
24-06-2010
May 2010 ATI Online Magazine
WHILE ASIAS EXPORTS have turned around dramatically, they are poised to slow in 2011 as inventory restocking in major economies is completed.
The International Monetary Fund estimates that, for every one per cent the US inventory-to-shipment ratio falls below trend, exports from Asia to the US rise by about 1.5 per cent in the following quarter.
In its latest Regional Economic Outlook for Asia Pacific, released in New Delhi, the IMF says that, with the inventory-to-shipment ratio in the US running about five per cent below trend in the first quarter of 2010, inventory adjustments could add some seven per cent to sequential growth of Asia's exports in the second quarter of 2010.
The IMF says inventory restocking tends to feed quickly into industrial production in Asia, and that for every one per cent the inventory-to-shipment ratio deviates from trend, Asian industrial production growth rises or falls by 0.1 per cent the following month.
It says this suggests that the inventory cycle may have contributed about one-fourth of the overall rebound of industrial production for example, in Korea since its trough in 2009.
Obviously, if inventory restocking is in response to demand, and if US and EU consumer demand is not likely to return to pre-crisis levels, then who will take the place of US and European consumers after this initial pick-up in demand?
The prevailing thought is that demand from the US, and now the EU, is unlikely to reach levels seen before the Great Recession of 2009.
The world looks to China, not just because it is the most populous nation, but because it has stacks of cash in the bank. Other economies in Asia Pacific which have strong domestic consumer demand Australia, India, and Indonesia are not big enough to make a difference to global demand.
The IMF says China alone cannot offset the decline in demand from advanced economies. China is still a relatively small importer of consumer goods. It accounted for just three per cent of global imports in 2008.
China drives the global market for raw commodities, accounting for about one-sixth of global commodities trade.
The world looked to Asia to lead it out of the great recession of 2009, with China leading the charge on projected GDP growth of 10 per cent in 2010, but this belies the reality that Asia depends on the world market for its growth.
In analysing the region's dramatic recovery from the crisis, the IMF notes that stimulus implemented by the richer Asian countries Singapore, Hong Kong and developed Southeast Asian countries and China played an important role in kicking up growth. Typically, these countries honed in on infrastructure, which has a high multiplier impact on their economies.
In its modelling, the IMF says the overall impact on growth in the region from these packages averaged about 1.75 per cent.
The growth impact ranged from about 0.5 per cent in the highly-open Asian economies to more than two per cent in China.
Significantly, the IMF modelling shows that stimulus packages implemented in countries, outside Asia contributed to an average increase of 3.25 per cent of growth in Asia. This, again, underscores how intertwined the region's growth is, and how dependent it is on consumers outside the region.
In fact, putting aside exports alone, the IMF says Asia's true dependence on external demand is even greater than suggested when export-related investment is considered. It says a significant share of investment in Asia is tied to the export sector.
External demand also contributes to growth by affecting investment. The IMF estimates that 30-40 per cent of investment in Asia depends ultimately on exports.
n US exports to China uo 330 per cent, page 3
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