Macro Insights Weekly: Can trade bail out Asia this year?

Covid resurgence has clouded the domestic demand outlook for several Asian economies. Can external demand sustain and play a critical offsetting role?
Taimur Baig, Samuel Tse24 May 2021
  • Asia’s trade performance has been impressive lately…
  • …with the data underscoring substantial strength beyond base effects
  • China’s Jan-April exports were up 30% from the same period two years ago
  • For Asia ex-China, the figures are not as dramatic, but they tell a similar story
  • Low rates and policy support in the US and EU bode well for Asia’s export demand to sustain
Photo credit: AFP Photo

Commentary: Can trade bail out Asia this year?

Resurgence of Covid infections and attendant policy stringencies have taken the momentum out of the economies of Japan, Singapore, Taiwan, and Vietnam for the time being. These economies came into 2021 with strong momentum on the back of successful pandemic management and strong external demand. But now what?

With domestic demand likely to stall in varying degrees as authorities keep mobility tight till a threshold of vaccination is achieved and new cases drop, these economies will have to rely on external demand to carry through 2021.

Asia’s trade performance has been impressive lately, with the data underscoring substantial strength beyond base effects. Case in point is China. On one hand, China’s exports numbers, dizzyingly higher than a year ago (+44%, Jan-April, yoy), should be discounted given that trade came to a sudden stop early last year. On the other hand, China’s Jan-April exports are up 30% from two years ago, suggesting that the export growth run-rate is quite strong. For Asia ex-China, the figures are not as dramatic (+17% from 2020 and +10% from 2019), but they tell the same story as well.

Given that Asia is an intricate supply chain, it is hardly surprising to see equal vigour in exports and imports around the continent. Demand for inputs and finished goods in the electronics and pharmaceutical sectors, as well as commodities, is strong across the board. The US ran a trade deficit of USD146bn vis-à-vis Asia in 1Q21, an all-time record, largely on the back of its import demand, which conversely is Asia’s exports demand.

How are Asian exporters feeling? Our measure of GDP-weighted regional manufacturing PMI remains firmly above 50, but the momentum has ebbed a tad in recent months. If interest rates stay low and policy support in the EU and the US remains in place, the consumption-investment driven growth narrative will remain intact, in our view. China’s domestic demand remains unaffected by the pandemic resurgence in the rest of Asia so far, which is another important pull for the region. Domestic demand in many Asian countries may not perk up anytime soon, but export related production and earnings look likely to remain as a useful offsetting factor for growth.

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Taimur Baig, Ph.D. 泰穆爾 貝格, Ph.D.

Chief Economist - G3 & Asia 集團首席經濟學家 - G3 及亞洲

Samuel Tse 謝家曦

Economist - China & Hong Kong 經濟學家 - 中國及香港

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