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Asia’s exports slump to deepen as global economic slowdown hits regional powerhouses

Asia’s exports slump is expected to deepen, with analysts saying regional trade is heading for its lowest point since 2015.
Amid a slowdown in global demand, Asian exports will continue to decline until at least April, according to an index compiled by Nomura Bank.

The index combines eight economic elements to predict exports three months in advance for China, Hong Kong, India, Indonesia, South Korea, Malaysia, the Philippines, Singapore, Taiwan and Thailand and it shows a rocky road ahead.

Among these early gauges are purchasing managers’ index for global manufacturing, which is a finger on the pulse of factory output around the world, semiconductor orders and China’s import growth.

China’s import growth, meanwhile, crashed by 4.9 per cent, said Rob Subbaraman, a managing director at Nomura, who co-authored the research, which is bad news for other economies in the region, which are heavily reliant on Chinese demand.

Nomura’s research shows that global semiconductor sales growth declined by 5.7 per cent year on year – an indicator of a sluggish electronics sector, a dominant industry in the region.

The index feeds into a wider picture of underwhelming official trade data across Asia’s exporting powerhouses, including South Korea and Taiwan, and Indonesia – the largest economy in Southeast Asia.

While a trade war deal between China and the United States may ease extreme business pessimism, the health of many Asian economies is more closely related to the wider global growth picture, which is negative.

“Exports by major Asian economies have been on a downward trend since they peaked at the end of 2017, and the deceleration became more rapid towards the end of last year. With the softening global demand and uncertainties related to the US-China trade dispute, this trend could continue, at least in the first half of 2019,” said Chen Dong, senior Asia economist at Pictet Wealth Management.

Exports from Indonesia tumbled 11.33 per cent from a year earlier in February, well below the market consensus of a 4.5 per cent drop. It was the fourth straight monthly decline and the steepest slump since June 2017.

In South Korea, home to a host of leading car and electronics manufacturers, exports crashed 11.1 per cent in February.
In the Philippines, the latest available data was for January, when exports declined for the third successive month, by 1.7 per cent. This was, however, an improvement from December’s 12 per cent decline.

Exports decreased the most in the electronics equipment and parts sector, followed by metal components, gold, and machinery and transport equipment.

Japan too is experiencing a tough time in trade terms. In January, Japan’s machine orders, which exclude those of ships and electrical equipment, declined 5.4 per cent month-over-month, worse than an expected 1.7 per cent fall.

This marked the third straight decrease in core machinery orders and the steepest since September. The decrease was led by a 51.2 per cent plunge in textile mill products while non-manufacturing orders also declined by 8.0 per cent
With the world economy faltering, global central banks and governments have taken a dovish turn to try to arrest the decline.

The Bank of Japan acknowledged this week that “exports and production have been affected by the slowdown in overseas economies”, and that the labour market has “shown some weakness recently”.

The European Central Bank has also expressed fears over a “period of continuous weakness and pervasive uncertainty” this year.

China’s government pledged for more stimulus measures, especially cuts in value-added tax and personal income tax, although it is keeping monetary policy “prudent”, after exports tumbled by 20.7 per cent in February, the biggest fall in three years.

However analysts are sceptical as to whether central bank have the capacity to issue the required amount of stimulus.

“Is there any place in the world now that can really start a new stimulus programme and achieve results?” said Kevin Lai, chief economist Asia equity research at Daiwa Capital Markets. “China has already done a lot of stimulus and its debt is already very high so it has very limited bullets left.”

Chen at Pictet Wealth Management added that China’s stimulus measures will be slow to show up in the economy. So far there are still no signs of a sharp rebound, even if a hard landing is not expected.

Furthermore, domestically-driven Asian economies may outperform exporters in the current environment, Chen said.

However, these economies are not without their domestic risk factors. Both India and Indonesia, which have huge consumer bases, will have general elections in the coming months that may add to the Asia-wide picture of uncertainty.
Source: South China Morning Post

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