4 reasons for Asia's export slowdown

December 29, 2015

Exports drive growth for Asian economies and the recent slowdown in world trade has weighed on growth for many countries in the region. World Bank researchers have outlined four main factors that account for the slowdown, which break down as follows:

 

  • Weak demand in advanced economies: Demand from the EU and the US hasn’t recovered to anywhere near pre-crisis levels; in fact, IMF estimates put current import demand at 22-23% less than pre-crisis levels.

                   

  • Changing demand composition: Demand for trade intensive commodities, such as copper, iron, has declined. In part this reflects lower investment from both public and private sectors. China looms large in this trend: as it moves away from investment-driven growth, demand for steel, cement has slowed considerably.

  

  • Tighter financing conditions: Higher capital requirements and tightened financial regulations have reduced banks’ willingness to extend trade finance.

  

  • Slowing momentum towards further liberalization: Despite the signing of monumental agreements such as the Trans-Pacific Partnership, the pace of trade liberalization has slowed since the crisis.

 

No doubt these factors explain part of the story, but there are also structural changes happening too. Most notably, a shift in sourcing by both Chinese and American companies toward domestic producers, two factors that have weakened import demand in two of the world’s largest economies.

 

Looking at recent signs, the trade slowdown looks to be continuing into 2016, with dismal figures being reported by Hong Kong and Thailand today. For a rapid turnaround, there will have to be changes in the above four factors for trade growth to begin to match the pre-crisis pace.

Please reload