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People's Daily: World trade faces downside risks

(People's Daily Online)

08:13, August 14, 2012

(Photo/China Daily)

World trade growth has slowed abruptly in 2012 due to the European sovereign debt crisis and slowdown in emerging economies, according to the 2012 Global Trade and Investment Report released by the Japan External Trade Organization on Aug. 9. The World Bank believes that developing countries have contributed to more than 50 percent of world trade growth since 2009, and their growth rate of gross domestic product in 2012 will be twice that of developed countries. Therefore, developing countries will continue to serve as the engine of global trade growth.

Rebound unlikely to continue

According to the World Bank's Global Economic Prospects report published in June 2012, world trade rebounded in early 2012 mainly due to strengthening import demand in developing countries, after declining sharply in the fourth quarter of last year. However, the deterioration of the European debt crisis in the second quarter added uncertainty to fragile global trade. The rebound is unlikely to continue, but world trade will not decline as sharply as it did in the fourth quarter of last year, the World Bank predicted.

The Organization for Economic Cooperation and Development (OECD) forecast in May that the annual growth rate of the exports of its member states is expected to drop from nearly 6 percent in 2011 to nearly 4 percent in 2012.

The OECD's chief trade economist said that the global trade outlook remains positive, though trade growth is still below pre-crisis levels.

Sluggish U.S. and European markets affect Asia's exports

In Asia, South Korea's exports fell nearly 9 percent in July from a year earlier, the biggest contraction since September 2009. The exports of Thailand and Hong Kong fell over 4 percent and nearly 5 percent, respectively, in June. Indonesia's exports fell over 16 percent in June, the biggest drop in nearly three years. Major Asian economies witnessed the biggest drop in their exports in July in three years, according to a report released by British market research firm Markit Economics on Aug. 1.

Gu Qingyang, an associate professor at the National University of Singapore's Lee Kuan Yew School of Public Policy, said that world trade, which is greatly dependent on the European, U.S., and Japanese markets, has been severely affected by the weak performances of the three economies. The exports of East Asia, Brazil, India, and Russia have also been affected. As the European debt crisis further deteriorates, world trade will naturally decline.

Quan Dejian, an economic analyst based in Singapore, said that Singapore's dependence on the U.S. and European markets dropped from 34 percent in 2000 to 20 percent in 2011, while the share of its exports to the Asia-Pacific region increased from 61 percent to 71 percent. Southeast Asian countries export a large amount of intermediate goods to China, which then exports finished goods to the U.S. and European markets. As it can be seen, the trade in Southeast Asia is closely related to the U.S. and European markets. Quan added that 22 percent of foreign direct investment (FDI) in Southeast Asia comes from Europe, and a decline in FDI has inevitably affected the region's exports. Gu agrees that the sluggish U.S. and European markets have had a negative impact on the exports of Southeast Asia, including the exports of intermediate goods.

Manufacturing slows down in Asia

The Purchasing Managers' Index (PMI) for Asia compiled by Markit Economics dropped from 49.3 in June to 48.2 in July. A PMI reading below 50 indicates contraction in the manufacturing sector. “The decline of the manufacturing sector is caused by shrinking exports. Asia's exports are declining at the fastest pace since April 2009,” the firm said.

The managing director of Hong Kong and Shanghai Banking Corporation (HSBC) Qu Hongbin, who doubles as co-head of Asian economic research and chief economist in Greater China region, said on Aug. 9 that China and other Asian countries will face a higher downward pressure on their exports in the second half of 2012. The government of China should make efforts to regulate the counter-cycle by means of monetary and financial policies to prevent the national economy from slowing down sharply. Furthermore, it still has room for China and other Asian countries to invest in the infrastructure construction. Increasing investment in the infrastructure construction can not only play a role in the regulation of counter-cycle in the short term but also improve urban quality of life and enhance the environment for economic performance in the medium and long term.

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