Shrinking trade puts pressure on emerging markets

london — Falling exports are piling pressure on emerging economies, putting many of them at risk of a multi-year cycle of sluggish trade, economic growth and investment.

From Korean cars to Chilean copper, exports from emerging markets are declining year-onyear at the sharpest rate since the 2008-09 crisis, according to a report by UBS, while Asian powerhouses such as Korea, Taiwan and Philippines have posted five to six straight months of dwindling overseas sales.

On Thursday, South Korea posted its worst quarterly economic growth in more than six years and while many factors drove the print, slowing exports certainly contributed.

Initially blamed on wary Western consumers and China’s reduced appetite for oil and cement, the trade slump is increasingly stemming from weaker intraemerging market ties — the socalled south-south trade valued by the United Nations in 2013 at $5 trillion.

That’s unsurprising — UBS estimates emerging markets’ growth premium to richer peers as now being under three per cent, the narrowest since 1999. And as consumption and investment fall in many countries, their imports too are shrinking.

“Any country that is relying on exports is going to have a very hard time,” said Yu-Ming Wang, chief investment officer at Nikko Asset Management which manages almost $170 billion.

“The world’s capacity to grow is more limited now. In the past decade, China created the equivalent of Germany, France and Italy, it can’t do that all over again,” said

Any country that is relying on exports is going to have a very hard time

Yu-Ming Wang,

Chief investment officer at Nikko

Asset Management Wang. China’s $9 trillion economy has expanded tenfold since 2000.

Just as China’s rise since 1990 transformed swathes of countries, its gearshift to slower growth is hitting them on the way down, whether Latin American commodity exporters or Asian countries whose factories are part of its global supply chain.

China imports $50 billion a month less than during 2013 peaks while latest monthly exports were $26 billion off the highs at the end of last year. Latest data shows imports, often semi-finished goods for re-export, fell 15.5 per cent in the first half of 2015 from year-ago levels. Other factors include yen weakness that has made Japanese firms more competitive against Asian rivals and the erosion of emerging markets’ productivity and currency competitiveness during the boom years.

That has encouraged ‘onshoring’ — moving manufacturing back to the United States or Germany. And finally, US imports increasingly consist of machinery and equipment that come from Germany or Japan rather than emerging markets.

“The world of exports is no longer beautiful,” Thailand’s central bank governor Prasarn Trairatvorakul said recently.