(Corrects last paragraph of story originally published on Oct. 16 to show poll was taken in February 2012. To receive this column daily, click SALT ECOCOL.)
Asia’s exporters are failing to benefit from a recovery in advanced nations, putting the onus on policy makers to shift reliance to domestic demand as a driver of economic growth.
China’s exports unexpectedly fell last month, while overseas shipments from Taiwan and South Korea also declined. Asia’s export-led growth engine is showing “signs of serious defects,” according to Frederic Neumann, Hong Kong-based co-head of Asian economics at HSBC Holdings Plc, who says the region’s trade data has disappointed over the past couple of years and may be evidence of a loss in competitiveness.
The region’s export recovery is faltering even as Europe emerges from its longest recession on record and U.S. manufacturing (NAPMPMI) grows at the strongest pace in more than two years. The International Monetary Fund this month lowered its forecasts for growth in developing Asia for 2013 and 2014 while leaving projections for advanced nations unchanged.
“Many Asian economies are relying on domestic demand as an engine of growth, rather than external as they move away from an export-led strategy,” said Jeff Ng, an economist at Standard Chartered Plc in Singapore.
Economists at financial companies from Bank of America Corp. to Morgan Stanley are predicting a healthier U.S. economy will provide less of a boost abroad than it once did, partly because of changes wrought by the financial crisis and recession. Before a partial shutdown of the U.S. government began at the start of October, the world’s largest economy had been improving enough for the Federal Reserve to consider tapering the amount of stimulus it provides monthly.
Malaysia’s domestic sector has been “solid and has been the anchor” of growth, central bank Governor Zeti Akhtar Aziz said in an interview this month. The expansion in the Southeast Asian nation would have been 1 percent to 2 percent this year instead of being on track for 4.5 percent-to-5 percent growth if policy makers had not rebalanced the economy, she said.
In the Philippines, where President Benigno Aquino is raising spending to a record this year, central bank Governor Amando Tetangco said in an Oct. 2 interview that growth is set to exceed 7 percent in 2013. Sri Lanka unexpectedly cut interest rates yesterday to “stimulate the economy to reach a higher growth trajectory” as it identified risks including the U.S. shutdown and political impasse over raising the debt ceiling.
The Bank of Thailand kept its benchmark rate unchanged today. The economy entered recession in the second quarter amid weakening exports, and Finance Minister Kittiratt Na-Ranong said Oct. 3 his focus is on proceeding with a 2 trillion-baht ($64 billion) transport-infrastructure program, rather than on “external” dynamics such as international developments.
Elsewhere in the region, New Zealand inflation accelerated faster than economists forecast last quarter, while South Korea (KOEXTOTY)’s unemployment rate fell in September. U.K. jobless claims fell the most in 16 years last month as a wider measure of unemployment remained at 7.7 percent amid signs that the labor market is improving.
Asia -- which had seven of the top 10 exporters of textiles and clothing and office and telecommunications equipment in 2011 -- shipped $6.1 trillion of goods last year, a 2.3 percent increase from the year before, according to World Trade Organization data. The jump was 18 percent in 2011.
Growth of shipments from Asia from mid-2003 to mid-2008 averaged 22.5 percent a year, according to Paul Gruenwald, Asia-Pacific chief economist at Standard & Poor’s in Singapore. Since the global financial crisis, the average is 8.5 percent, he said.
“Solid export growth had been a mainstay of the Asian story before the global financial crisis,” Gruenwald wrote in a Sept. 30 report. “That is no longer true.”
Asian companies are battling rising costs as governments increase minimum wages to curb discontent over a widening wealth gap. Average pay in Asia almost doubled between 2000 and 2011, compared with a 5 percent increase in developed countries and about 23 percent worldwide, according to the International Labour Organization in Geneva. The gain was led by China, where average remuneration more than tripled during the period.
In the Indonesian capital of Jakarta, Governor Joko Widodo last year approved a 44 percent increase in minimum pay for workers, to 2.2 million rupiah ($200) a month. Thailand raised its national daily minimum wage to 300 baht in January. Malaysia introduced a base salary last year, benefiting about 3.2 million workers, while Taiwanese President Ma Ying-jeou has also increased the lower limit on earnings in recent years.
As the cost of goods from emerging Asian economies rises, any demand increase in advanced nations may be met by local production rather than imports, HSBC’s Neumann said.
“Many countries in emerging Asia may be losing competitiveness,” Neumann wrote in an Oct. 14 report. “It’s important not to push this argument too far, but the trend is evident among a number of industries, with even some textile and electronics production being relocated back into the United States for example.”
Fifty-four percent of U.S. manufacturers with sales topping $1 billion are planning to or considering bringing back factory-lines from China, up from 37 percent in February 2012, the Boston Consulting Group said Sept. 24, citing a survey of 200 executives. It projects that with Chinese wages and benefits rising 15 percent to 20 percent a year, the cost of operating in China will be the same as staying in the U.S. by 2015.
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