JEDDAH — Trade in Asia is experiencing a cycle of intense weakness. Both imports and exports have been subdued for several months, Asiya Investments said in its latest analysis. However, the evolution of imports is particularly striking. The imports average growth rates in the first months of 2015 were negative in 9 out of the 11 largest emerging Asian economies.
Moreover, from 2014 to 2015, the average growth rate only improved in Thailand. There are two main factors that explain this marked trend: the sharp decline in oil and commodity prices and the deceleration process experienced by most Asian economies. These trade statistics are recorded in nominal term, therefore, variations in the price of commodities have a great impact on the figure. Additionally, the evolution of internal demand in each country will determine the quantity of imported goods, hence also have affecting the gauge.
If internal demand weakness is partly driving the reduction of good's imports, the same should hold for services. In fact, imports of services decelerated in most countries of the sample in 2015, with the exception of India and South Korea, but the growth rate did not fall in negative territory for any of the countries, except for Japan. This fact suggests that price dynamics had a more important impact on the drop. Most of the considered Asian countries are net importers of oil and mining products, with the exception of Malaysia and Indonesia. Imports of this category are above 40% of total merchandise imports in Japan, India and South Korea, and above 20% in all the other considered economies but Hong Kong. The higher the share of oil-related imports, the sharper the fall in merchandise imports.
A large number of these countries have strong trade relations with the Gulf Cooperation Council (GCC). According to the World Trade Organization (WTO), Saudi Arabia is one of the top-five suppliers of Japan, India and South Korea. The UAE is also one of the top-five exporters to India and Thailand. In addition, China and India are amongst the main destinations of Kuwait's exports. The combination of the weakness in oil prices and in the slowdown in Asian demand already had a considerable impact on the public finances of Gulf countries. Currently, there are no signs of improvement in demand from Asia. However, the abrupt plunge in oil prices in mid-2014 (Brent dropped from $110 per barrel in June 2014 to about $50 in January 2015) already started its correction, and in about five months increased to $65 per barrel.
If the recovery of oil prices continued, it would lead to a restoration of exports income for the GCC. However, the resilience of this increment depends on two uncertain factors: the end of oversupply and the recovery of global demand. The competition for market share in the oil market suggests that prices will not climb back to pre-2014 levels in the medium term. Additionally, the expected weakness in global and Asian demand is not expected to add any substantial upward pressure on prices.
Expectations of low oil prices and Asian demand weakness do not draw a very optimistic outlook for export revenues in GCC countries, Asiya Investments noted. — SG
