Asia has an export problem

On paper, it looks like Asian exports might be picking up — but don’t believe it.

There are some signs that the downturn that began nearly two years ago is finally ending. In June, regional export growth was positive for the first time since September, in local currency terms. And although the dollar value of Asian exports fell again, the year-over-year decline was the smallest since January last year.

The chart below shows the uptick — two years of negative growth, and then, recently, a positive change. Export growth in local currency terms is finally positive, and in US dollar terms it’s the least negative it’s been in a while.

At the country level, the pace of decline has slowed everywhere, and in four countries — India, Bangladesh, Taiwan, and Vietnam — the dollar value of exports is actually expanding.

So, good news all around.

However, there’s a problem. According to a note from Capital Economics, these numbers don’t tell the complete story when it comes to emerging Asia’s exports. And the real situation isn’t quite so optimistic.

What really matters for these countries’ exports — and economies — is the underlying demand. And that isn’t getting any better.

What’s driving the ostensible “improvement” in exports is actually the fact that low commodity prices aren’t being factored into the annual comparison anymore. The commodity price slump of last year was a huge drag on commodity export values — the same volumes weren’t worth as much. And that severely decreased the year-over-year export performance in dollars.

But that slump has been going on for long enough that year-over-year comparisons don’t look that bad, even though earnings are still low.

This is all to say that the export struggles are likely to continue, and any numbers that say otherwise should be taken with a grain of salt.

Instead, the Capital Economics note says, look at this number — export volumes fell 2.5% year-over-year in the first five months of this year. That’s how much they fell in the first half of 2015.

A big reason for this is still China. China has been moving up the value chain, which means that it’s been producing more and more of the complex intermediate goods that it used to import from the rest of Asia. Which has been a huge problem for emerging markets like Korea, whose exports have been declining primarily because China is both no longer importing its goods, instead producing its own, similar goods to export.

Japan, while hardly an emerging market, also reported similarly gloomy export figures in July, although that was mostly due to a surging yen. The finance ministry said the value of exports last month fell 14% from a year earlier — the 10th straight monthly fall.

So for emerging markets, there’s very little chance of a strong recovery in export volumes, the researchers say. And they expect GDP growth to remain similarly lacklustre.

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