Below is a summary. For charts and full report, please download the PDF

Asia’s goods export growth, a bellwether for global demand, has been resilient so far in 2022 on an aggregate basis. Under the hood, however, we see a divergence between North and Southeast Asia. Entering 4Q22, we reckon a correction of Asian export growth is already in the offing, driven by the combination of tightening global financial conditions and weaker demand, albeit still expanding. For 2023, the outlook is uncertain with downside risks mirrored in our GDP forecasts. Our forecasts see global GDP growth likely easing to 2.5% in 2023, vs 3% in 2022 and 6.2% in 2021 (see Macro Insights Weekly: Higher rates and Macro Insights Weekly: Revising down China for more details).

Aggregate exports resilient so far in 2022

Our measure of aggregate regional exports reflected a respectable outcome so far in 2022, especially when we consider unfavourable base effects from the pick-up from the post-pandemic lockdown last year. Through August, regional exports expanded by double-digits of 13.7% YoY (3-month moving average, 3mma), even though slower than 26.0% at December 2021. Asia’s 3mma aggregate manufacturing purchasing managers’ index (PMI) stayed above expansionary territory at 50.9 in September, but moderated from 52.2 at December 2021. 

Asian exports have also by and large been a bright spot through the turbulent pandemic. We remove the messy impact of the start-stop nature of the pandemic by comparing with 2019 data. Our calculations showed that year-to-date regional export nominal values through August 2022 were ~52% higher than the same period around two-three years ago.

Diverging regional exports performance

Just looking at aggregate weighted export growth, however, masks a divergence that has formed between North and Southeast Asia. North Asian goods exports growth from China, South Korea, and Taiwan appears to be softening as electronics demand weakens. Electronics exports account for a sizeable share of total exports for these economies (around 30% for China and Korea, and 50% for Taiwan in 2021). ASEAN-6’s export growth has held its ground this year, partly supported by commodity exports, and in recent months by favourable base effects from last year’s pandemic-related factory disruptions. Separately, India’s overseas shipments have pulled back in the past six months after a strong performance in the previous fiscal year as demand weakens.

China

China’s economy continues to face a bumpy recovery. Our China economists lowered their 2022 and 2023 growth forecasts to 3.0% and 4.0% in early-October. They see growing external headwinds. China’s overall export growth ticked lower to 14.1% YoY, 3mma in August vs 23.1% in December 2021. China’s headline manufacturing PMI inched further lower to contractionary terrain of 48.1 in September, while the new exports orders sub-component also remained weak. A stronger CNY relative to other currencies would also undermine the competitiveness of Chinese goods.

South Korea and Taiwan

South Korea’s and Taiwan’s export cycles have turned lower, alongside manufacturing PMIs that have deepened into contractionary territory since 3Q22. Korean and Taiwanese overall export growth moderated to 6.0% YoY, 3mma and 3.5% YoY, 3mma, respectively, in September, vs ~25% and 26% at December 2021. Their 3mma manufacturing PMIs dropped to contractionary zone of 48.2 and 43.2, respectively, in September, compared with 51.0 and 55.2 at end of last year.

Our economist sees an ongoing tech downturn, reflective of the deterioration in global macroeconomic conditions. Gartner warned in July of weakness in downstream consumer electronics areas like PCs and smartphones, citing the deterioration in global consumer disposable incomes as a result of rising inflation and interest rates.

ASEAN-6

In contrast to North Asia, ASEAN-6 goods exports have outperformed the Asian region. Through August, ASEAN-6 exports expanded by double-digits of 24.4% YoY, 3mma, only slightly weaker than 30.3% as of December 2021, and higher than the Asia weighted aggregate.

ASEAN-6, notably Indonesia and Malaysia, has benefitted from the positive terms of trade shock. The upside shock has been driven by higher commodity prices across the agriculture and energy complex, in part supported by the supply disruptions from the Russia-Ukraine war that broke out since February 2022. Favourable base effects from last year’s pandemic-related factory disruptions have also supported the region’s % YoY performance, such as in Malaysia and Vietnam. Both Indonesian and Malaysian goods exports grew by more than 30% YoY, 3mma in August 2022, vs ~46% and ~27% at December 2021. Vietnam expanded by 16% YoY in September 2022, 3mma vs ~19% at December 2021.

India

India’s export growth has slowed to 13% YoY in April-September 2022 (declining in September 2022) after rising a strong 45% in FY22. Besides the YoY pullback reflecting a high base, the slowdown has been also a function of weakening demand from key trading partners as well as moderation in segments that lifted annual exports to a record last year.

Modest slowdown but positive growth based on leading indicators

With interest rates going up across key demand destinations – especially the US and EU, the rising cost of financing should have a dampening impact on consumer and business spending, affecting the demand for goods produced in Asia.

Our aggregate Asia export growth leading indicator model shows rising headwinds entering 4Q22, but would stay positive at low single-digit. Beyond 2022, the Asian export outlook is uncertain, with risks tilted to the downside in 2023. Our model incorporates five leading variables, using Taiwan export orders, copper prices, South Korea equity prices, China new export orders, and China’s imports from Asia, at various lags and weighted by their statistical relevance to tracking exports (see Appendix in the PDF for methodology details). The z-scores of these five leading variables paint a picture of a modest slowdown for regional international shipments, rather than a cliff-like drop-off.

Even with expectations for a global growth deceleration and rising recessionary fears in 2023 driven by rapidly tightening monetary/financial conditions, aggregate Asian exports nominal values would still have progressed remarkably since the onset of the pandemic, backdrop of supply chain disruptions, and rising economic uncertainties.

To read the full report, click here to Download the PDF.