Asia’s Export Evolution Highlights the Need for Structural Change
Asia’s export growth performance has slowed markedly since the Global Financial Crisis, cutting off a vital source of business for many of the region’s exporters and raising concerns about the extent to which growth in the region can continue to lead world economic growth.
Asia: Export Growth Rates, 1998-2008, 2012, 2013, 2014
In a previous post, we argued that this is largely because of changes in the United States, where cheaper energy costs, weaker consumer demand and a decline in US offshoring have dampened growth in the Asia-Pacific region.
While this explanation speaks to a US-centric view of the situation, the IMF’s recent April 2015 Outlook report looks at the phenomenon of slower exports in much more detail.
According to analysis by IMF researchers Gee Hee Hong and Joong Shik Kang, Asia’s export growth slowed to an average rate of 4% y-o-y during 2012-2014, compared with 11% y-o-y growth, on average, between 1998 and 2008.
They acknowledge that weaker demand from major consuming trade partners has accounted for a large share of the decline. According to their analysis, demand from major trading partners for Asian countries between 2012 and 2014 has decreased between 6-8% compared to prevailing levels between 2000 and 2008.
Change in Demand from Major Trade Partners to Major APAC Economies, 2014
Looking more closely and confirming the above analysis, IMF researchers show that the impact on key markets’ (e.g. US, EU) import demand from increased economic growth has steadily decreased since 1990. In technical terms, export elasticity to trade partner income has decreased for all Asian nations, meaning major trade partners are importing less even though they are growing, possibly because they are being boosted by government spending rather than investment demand, which is more import intensive.
Export Income Elasticity: Major APAC Economies, 1990-2000, 2000-08, 2010-14
For Hong and Kang, part of the explanation lies with China. Before the Asia crisis, China was a major importer of intermediate goods, i.e. the components for final products. In subsequent years, China has been sourcing more of these intermediate goods domestically, thus reducing demand for imports from partner countries in the Asia Pacific region.
These studies shed more light on the mystery of Asia’s export performance in recent years. For many countries and workers in the region, this is a real source of anguish, contributing to increased unemployment and a shift in corporate investment. Ultimately, these trends bring home the overriding necessity of economic reform and restructuring for many countries in the region, since exports are no longer such a reliable source of growth and employment as in the past.