Exports from emerging market economies have finally started to rise, potentially helping to dispel a little of the gloom enveloping discussions of global trade.
As recently as July, data suggested that demand for emerging market exports, once one of the engines of global economic growth, had fallen to a new post-crisis low, with even the relatively robust US economy seeing declining demand for merchandise imports from China, in both value and volume terms.
However, according to a database of 56 emerging market countries maintained by Capital Economics, a consultancy, the value of EM exports in dollar terms rose year on year in August, the first such increase in two years.
The rise, at 0.1 per cent, was admittedly small. However, the reading was still a far cry from the year-on-year decline of 15.7 per cent recorded in January, and the 7.8 per cent contraction witnessed in July, as the chart shows.
Moreover, the latest reading strengthens Capital Economics’ view that the slide in the dollar value of emerging market exports over the past two years was primarily driven by the collapse in commodity prices, rather than a more worrying structural decline in demand for the products of the emerging world.
“EM exports were never performing as badly as the headline figures might have suggested because a lot of it was the price effect. Similarly we are seeing a turnaround [now], but that’s also a price effect,” said Mark Williams, chief Asia economist at Capital Economics.
“August’s return to year-on-year growth is largely due to the base effects caused by last year’s weak commodity prices. Fears that contracting EM trade was a worrying sign for the world economy were always misplaced.”
The rally in commodity prices since the January lows means oil prices were 1.2 per cent lower in August than in August 2015 (compared with a year-on-year reading of minus 17.9 per cent in July), largely wiping out the price effect.
The wider S&P Goldman Sachs Commodity Index was still down 8 per cent year on year in August, but this figure will turn positive in the coming months, assuming raw material prices hold around their current levels.
In volume terms, emerging market countries’ exports have continued to rise, albeit at a “fairly tepid” rate of 2-3 per cent over the past year, in the words of Mr Williams, as the chart shows.
The modest rise in the value of EM exports in August was led by eastern Europe, with the Czech Republic, Romania and Hungary all reporting year-on-year gains of close to 15 per cent.
Mr Williams attributed this to the strength of the industrial sector in Germany, a major export market for central and eastern Europe, even if the impact may have been exaggerated by the timing of holidays at German carmakers, which may have displaced some activity from July to August.
Jacob Grapengiesser, partner at East Capital, an emerging market-focused asset manager, believed the data for the Czech Republic, Hungary and Romania were distorted by monthly deviations, with all three countries having seen sizeable year-on-year declines in exports in July before recovering strongly in August.
Nevertheless, he said the overall picture was rosy, with exports from the Czech Republic up 4.3 per cent in year-to-date terms as of August, and those from Hungary up 3.3 per cent.
In both countries, the rise has been driven by the car industry and transport equipment sector, with the value of such exports up 7.4 per cent so far this year in the Czech Republic (where the sector now accounts for 55 per cent of total exports) and 5.2 per cent in Hungary (where it accounts for 57 per cent).
Mr Grapengiesser expects to see similar export growth next year provided that Hillary Clinton wins the US presidential election. “In the case of a [Donald] Trump victory there’s some downside as confidence in the EU as a whole could be damaged,” he fears.
Elsewhere, Brazil and Turkey also saw large rises in the dollar value of their exports, providing some reassurance that the sharp currency depreciations both countries have witnessed may be feeding through to higher exports, despite a widespread view that, globally, the linkage between weaker exchange rates and rising exports is weakening.
“There has been a huge drop in the value of the [Brazilian] real in the last couple of years. This is exactly what is needed to rebalance the economy and maybe get more manufacturing exports,” said Mr Williams.
Nigeria, however, saw the dollar value of its exports slump more than 25 per cent year on year in August, as mounting attacks by militant groups on oil installations in the Niger Delta caused oil production to plunge to a 33-year low of 1.4m barrels a day.
Across EMs, it is quite possible that the year-on-year export numbers will have turned negative once again last month. Data from a handful of “early reporters” is somewhat disappointing, with Brazil returning to year-on-year contraction in September, and August’s contraction in Chinese exports deepening the following month.
Mr Williams is confident the trend remains positive, however. “The persistence of export volume growth, combined with the return of year-on-year rises in commodity prices, will push up headline EM export growth over the coming months,” he asserts.
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