All the BRICs dampening world trade in 2015

Transcription

1 Aug Weekly Economic Briefing Emerging Markets All the BRICs dampening world trade in World trade in has been hit by an unexpectedly sharp drag from the very largest emerging economies. The weakness in Chinese imports, after years of strength, has been the most important development, most obviously for other East Asian economies, but the recessions in Russia and, and the accompanying falls in imports, have also had noticeable impacts on the export growth of several of the world s key manufacturing economies. The slump in Russian imports has cut Korean and German export growth by around 1 percentage point (pp), while the weakness in ian demand has reduced US and Korean export growth by around.pp. The generalised fall in BRIC import volumes seen this year is not expected to be repeated in 1, but the return to growth will be very modest by the standards of 11- and the years before the global crisis, and even this is subject to large downside risks. It s not just where imports are falling While the reaction to last week s devaluation of the CNY clearly showed the huge importance of Chinese developments to the world economy, the latter has also been affected this year by the moves into recession in both Russia and and sluggish import demand from. According to our estimates, all four BRICs will subtract from world trade growth in, something that did not even happen in (owing to recovering so strongly from the global crisis with the aid of massive stimulus). BRICs: Change in import demand Constant 1 US$ bn Russia Forecast Indeed, we expect that the fall in Russian import volumes in constant US$ terms will be bigger than that seen in this year, although the impact of the change in is much more profound as companies all around the world would have been assuming that Chinese import demand would steadily increase and because of the depressing consequence for the many Asian economies that now rely very heavily on trade with. Russian imports plunge during recession The scale of the fall in Russian imports and its dampening effect on world trade this year reflects the collapse of domestic demand (and to a lesser extent some substitution towards domestic output prompted by sanctions, official encouragement and the fall in the ruble). While Russian GDP may only fall by around - this year, the country s import volumes may shrink by about. hitting the big manufacturing exporters Source: Oxford Economics Given its natural resources, Russia s imports are highly skewed to manufactures; and the slump in its demand has noticeably hit some of the world s biggest exporters, even though in 1 sales to Russia accounted for only - of total merchandise exports for countries such as, Germany and Korea. In H1, overall Chinese export growth (in US$ terms) was cut by. percentage points (pp) because of the drop in Russian demand, while Germany s (in euro terms) was reduced by close to Economist: Simon Knapp, Senior Economist Tel: sknapp@oxfordeconomics.com 1

2 Aug Emerging Markets 1pp and Korea s (in US$ terms) by 1.pp. Out of the US, Japan, Germany, Korea and Taiwan, the US and Taiwan were the only two where the absolute decline in exports to in H1 was larger than the drop in sales to Russia. Korea: Change in exports to BRICs Annual change (US$bn, month total) Uncertainty about n import volumes Although our forecasts for suggest that it will also exert a drag on world trade in, this assessment depends on the breakdown of the national accounts data being accurate and there remains a great deal of uncertainty about the quality of this information. The n national accounts for Q1 showed a very sharp fall in import volumes but trade data (in value terms) for, Germany, US and Japan all showed solid rises in exports to in H1, albeit those from Korea and Taiwan fell. In reality, the dampening impact on global trade from may be quite small this year. but fall in s has cut US exports By contrast, the impact of s recession on several major exporters is clear even if it is inevitably modest because of the relatively closed nature of s economy. In H1, both US and Korean export growth (in US$ terms) were cut by around.pp; in the case of the US this meant that falling sales to exerted a bigger direct drag on overall exports in H1 than those to. Modest recovery in 1 and beyond Russia Looking ahead to 1, the largest emerging economies are not expected to hold back world trade in the way they did this year. However, the BRICs will not supply the impetus seen in 11-. Both Russian and ian imports are forecast to stabilise after severe weakness in, while the fall in Chinese imports seen this year is expected to be a one-off, reflecting over-capacity in some parts of heavy industry and temporary problems relating to the gradual move from investment-led growth towards more consumer-driven expansion. US: Change in exports to BRICs Annual change (US$bn, month total) Russia However, there are obvious downside risks to this view. The changing nature of Chinese growth could lead to a more prolonged period of import weakness. This could dampen commodity prices yet further, placing even more strain on the Russian and ian economies beset by both severe structural problems and a huge worsening in the terms of trade, and in turn leading to further reductions in imports. Germany: Change in exports to BRICs Annual change (euro bn, month total) Russia Economist: Simon Knapp, Senior Economist Tel: sknapp@oxfordeconomics.com

3 Aug Emerging Markets Latest data Recent Data Releases Previous month Latest Comment Exports (Jul) Imports (Jul) Non-oil imports (Jul) Trade balance (m total) -. y/y -1. y/y -1. y/y -$1.bn (Jun) -1. y/y -1. y/y. y/y -$1.bn (Jul) Modest improvement in external trade flows in the last couple of months. Also, y/y non-oil import growth was positive in Q1, Q and July, suggesting reasonable domestic demand growth. Russia Industrial output (Jul) Manufacturing output (Jul) Retail sales vol. (Jul) Capital spending (Jul) Nominal wages (Jul) Unemployment rate (Jul) -. y/y -. y/y -. y/y -7.1 y/y. y/y. (1) -.7 y/y -7.1 y/y -. y/y -. y/y. y/y. () The level of retail sales volumes now seems to be stabilising, as does industrial output. But the pace of recovery will be very gradual at best. Real wages are down about on the year and the country s terms of trade has taken another hit with the fall in global oil prices to less than US$pb in recent days. Korea Manufacturing PPI (Jul) -. y/y -. y/y Negative for over three years now. Poland GDP (Q, s. adj.) Industrial output (Jul) 1. q/q. y/y. y/y. q/q. y/y. y/y Solid, broad-based growth continued in Q and this pattern should persist in the coming quarters, with consumer spending supported by real income growth of around. Indonesia Current acc. (Q tot) FDI inflows ( quarter total) -$.7bn (Q1) $.bn (Q1) -$1.bn (Q) $.bn (Q) Recent reduction in current account deficit appears to have been driven by a sharp fall in imports which is not that reassuring. Taiwan Export orders (Jul) -. y/y -. y/y Orders from US improved in July but those from the Mainland and ASEAN fell further. Thailand GDP (Q, s. adj.) Consumer spending Investment Export volumes. q/q (Q1).1 y/y. y/y 1. y/y 1.1 y/y. q/q (Q). y/y 1. y/y. y/y 1.1 y/y Q GDP underscored the divergence between continued dynamism in the tourism sector and lacklustre activity in the rest of the private sector hindered by the weak regional trade environment and the persistent uncertainty surrounding the political outlook. S. Africa Retail sales vol. (Jun, s.adj) CPI (Jul).1 m/m. y/y.7 y/y.1 m/m. y/y. y/y Retail sales only grew. q/q in Q, the slowest pace in a year. Jump in electricity prices raised headline inflation but core fell. Singapore NODX (Jul) Non-oil re-exports (Jul). y/y -1. y/y. y/y 7.1 y/y Stagnation in NODX persists but re-exports rose to their highest s.adj. level since March. Czech GDP (Q, s. adj.). q/q (Q1). y/y. q/q (Q). y/y Broad-based growth in Q and the manufacturing PMI survey strengthened in July Chile GDP (Q, s. adj.) Consumer spending Investment Export volumes 1.1 q/q (Q1). y/y 1.7 y/y -1. y/y.1 y/y. q/q (Q). y/y 1.7 y/y -. y/y -. y/y Though the GDP q/q change was expected, the breakdown of the national accounts was disappointingly weak, with consumer spending falling slightly on the quarter, and investment and export volumes dropping more sharply. Fall in copper prices will reduce incomes in Q. Economist: Simon Knapp, Senior Economist Tel: sknapp@oxfordeconomics.com

4 Aug Emerging Markets Events Monetary policy meetings in past week Key rate (now) Outcome Comment Aug 1 th Indonesia 7. (Policy rate) Unchanged We think the central bank will want to keep the policy rate at the current level for some quarters to ensure that inflation (currently 7.) falls back below next year (the target is +/-1) and provide the rupiah with some protection from large capital outflows. But the risk is that if the Fed moves in the next month and markets become more volatile then the central bank will have to raise interest rates, as the currency has already slipped over the last year. Aug 1 th Turkey 7. (1-week repo rate) Unchanged The central bank may be waiting to raise interest rates once the US Fed has started to hike. Although this strategy may provide the bank with some cover from domestic criticism, it is not reassuring to investors worried by the steady weakness of the TRY down against the US$ over the last year (and down against the weak euro) and the stubbornly high inflation rate. Reflecting the central bank s growing lack of credibility, the 1-year government bond yield has moved above 1 for the first time since April 1. Economist: Simon Knapp, Senior Economist Tel: sknapp@oxfordeconomics.com

5 Aug Emerging Markets Asia : Industrial output & retail sales volumes Industrial 1 output month moving average Retail sales : Price of new housing in Shanghai change on the month Emergers: Equity markets Index (Dec, 1 = 1) Asia: Manufacturing producer prices Indonesia Korea - Korea producer prices Jan 11 Jan Jan 1 Jan 1 Jan Singapore: Non-oil exports S$ bn (seasonally adjusted) Hong Kong: Components of GDP quarter Exports of services 1 Re-exports Domestic exports - - Consumer spending GDP Economist: Simon Knapp, Senior Economist Tel: sknapp@oxfordeconomics.com

6 Aug Emerging Markets Asia Thailand: Exports as a of GDP of GDP of GDP 1 Indonesia: Exports & imports (US$) ( month average) 7 Exports of services (R.H. scale) 1 1 Exports Imports 1 1 Exports of goods (L.H. scale) Source: Biro Pusat Statistik Emergers: Exchange rates v US$ Index (Dec, 1 = 1) Korea Indonesia 7 7 appreciation Jan 11 Jan Jan 1 Jan 1 Jan Emergers: Exchange rates v US$ Index (Dec, 1 = 1) 11 appreciation Philippines Singapore 1 Thailand Malaysia 7 7 Jan 11 Jan Jan 1 Jan 1 Jan : WPI inflation Non-food manufacturing products (core) Total Source: Oxford Economics Food : Exports & imports 7 Imports Exports month moving average Non-oil & gold imports Source: Ministry of Commerce Economist: Simon Knapp, Senior Economist Tel: sknapp@oxfordeconomics.com

7 Aug Emerging Markets Latin America : Monthly economic activity indicator month annualised growth Year-on-year growth Emergers: Exchange rates v US$ Index (Dec,1 = 1) 11 1 Chile Mexico 7 Argentina depreciation Jan 11 Jan Jan 1 Jan 1 Jan Chile: GDP, domestic demand & exports Consumer spending Exports GDP Investment Colombia: Manufacturing output & retail sales (real) Retail sales month moving average Manufacturing Latin America: Consumer prices 1 Latin America: Short-term interest rates Colombia Mexico 1 Colombia Mexico - Chile Chile Economist: Simon Knapp, Senior Economist Tel: sknapp@oxfordeconomics.com 7

8 Aug Emerging Markets Emerging Europe Russia: Retail sales & capital expenditure Retail sales Capital expenditure Russia & Poland: Real Wages Russia 1 Poland - -1 month moving average Emerging Europe: GDP Romania Czech - Poland Hungary Emergers: 1 year government bond yields 11 1 Hungary 7 Romania Poland 1 Jan-11 Jan- Jan-1 Jan-1 Jan- Kazakhstan: Exchange rate v US$ Index (Dec, 1 = 1) Tenge per US$ 11 1 Russia: Interest rates Interbank rate (1 to days) Ruble per US$ 1 year bond yield depreciation Jan 11 Jan Jan 1 Jan 1 Jan 1-week repo rate Jan 11 Jan Jan 1 Jan 1 Jan Economist: Simon Knapp, Senior Economist Tel: sknapp@oxfordeconomics.com

9 Aug Emerging Markets Rest of World Turkey: Merchandise trade volumes 1=1 (seasonally adjusted) Imports 1 7 Exports Turkey: Interest rates month interbank rate Jan 11 Jan Jan 1 Jan 1 Jan 1-year bond yield South Africa: Retail sales volumes month annualised rate 1 - month moving average South Africa: Interest rates & inflation 1 Repo interest rate 1 Headline CPI inflation Core CPI inflation Emergers: Exchange rates (v US$ or euro) Index (unweighted average of 1 countries) Emerging markets: MSCI equity index (in US$) 7= Emerging markets 7 S&P (re-based) depreciation 7 Jan 11 Jan Jan 1 Jan 1 Jan 1 1 Economist: Simon Knapp, Senior Economist Tel: sknapp@oxfordeconomics.com

10 Aug Emerging Markets Industrial Production Percentage changes on a year earlier unless otherwise stated Korea Mexico Russia Turkey Taiwan Poland 1 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Consumer prices Percentage changes on a year earlier unless otherwise stated Korea Mexico Russia Turkey Taiwan Poland 1 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Economist: Simon Knapp, Senior Economist Tel: sknapp@oxfordeconomics.com 1

11 Aug Emerging Markets Exports (US dollars) Percentage changes on a year earlier unless otherwise stated Korea Mexico Russia Turkey Taiwan Poland 1 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Imports (US dollars) Percentage changes on a year earlier unless otherwise stated Korea Mexico Russia Turkey Taiwan Poland 1 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Economist: Simon Knapp, Senior Economist Tel: sknapp@oxfordeconomics.com 11