3 SUMMER 2022 NO.65 / THOUGHT LEADERSHIP BRIEF DRIVERS OF EXPORT PERFORMANCE This strong export growth performance is due to a surprisingly resilient globalisation profile. World trade growth (excluding exports of services, such as international tourism) has recovered strongly; and is well above pre-COVID levels. The WTO report that world merchandise trade is ~16% higher in Q3 2021 (the latest data available) than it was in Q4 2019. This has supported Asian economies, which are at the centre of global supply chains of manufactured goods. Indeed, Asian exports increased by 24% over this period. An important contributing factor to this strong world trade growth, in addition to the strong overall global economic recovery, was the rotation in consumer demand during the pandemic away from (locally-produced) services towards durable goods that tend to be traded across borders. As a major node in global supply chains, Asian economies benefited from this shift in consumer demand. Some export categories bounced back very quickly, after an initial loss of demand in the early days of the pandemic. Exports of electronics and semiconductors, for example, experienced very strong demand over the past two years (partly reflecting the growth of the digital sector during COVID). Asian economies that were exposed to these sectors had a better record than those that were not. For example, economies like South Korea and Taiwan had very strong export performance from mid-2020. Figure 3. World Trade, Annual % Growth Figure 4. US Household Consumption Expenditure, Q4 2019 = 100 125 120 115 110 105 100 95 90 85 80 75 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2018 2019 2020 2021 World Merchandise Trade (Value) Asia 130 125 120 115 110 105 100 95 90 85 80 Q1 Q2 Q3 Q1 Q2 Q3 Q4 Q4 Q4 2019 2020 2021 Non-Durable Goods Services Durable Goods Source: Macrobond; WTO; Landfall Strategy Group calculations Some Asian economies, such as Indonesia as well as Australia and New Zealand, also benefited from high commodity prices over the COVID period. Some of Asia’s export growth potential has likely been constrained by global supply chain disruptions over the past several months, which have made it difficult to physically export goods. But even so, Asian economies have out-performed other regions in terms of both GDP and export growth. LOOKING FORWARD But there are questions about whether the relatively resilient Asian export performance can be sustained. There are a few sets of reasons to expect a weakening contribution from external sectors in Asia. For example, as COVID lockdowns are lifted in many advanced economies, it is likely that consumer spending will rotate away from durable goods towards services. This will reduce the demand for traded goods, and will likely constrain demand for Asian exports. This will likely be reinforced by a weakening of the inventory building that many firms in advanced economies have been engaged in over the past year or so. Some firms have responded to widespread global supply chain disruptions by building up inventories, which has temporarily increased the demand for exported goods. But as this inventory building ceases, and then begins to unwind, there will be a weakening in import demand.
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