Emerging market exports are growing at their fastest pace in volume terms for six years off the back of a modest pick-up in global economic growth.
With unit prices for exports also rising, thanks to an ongoing recovery in commodity prices from last year’s lows, 2017 looks set to be the most positive for emerging market exporters since 2011.
“A stronger for longer expansion is driving rising world trade,” says Jon Harrison, emerging market macro strategist at TS Lombard, a research firm, with trade volumes starting to pick up in the final quarter of 2016 and now growing at the fastest pace since the aftermath of the global financial crisis.
“The rise in exports is part of the synchronised global expansion led by the US and the eurozone. The US is the main driver of the global economy and clearly that expansion is going to continue for longer than previously expected. China is not accelerating but it’s still growing fairly fast,” Mr Harrison adds.
“Emerging market economies are on average growing faster than advanced economies and their rate of trade growth is also typically greater.”
William Jackson, senior emerging markets economist at Capital Economics, adds: “We have seen a general upturn in global trade, both in terms of values and volumes. Although the price effect has dominated, the volume effect is still quite significant. Clearly we are not going back to the 2000s, but it’s a fairly positive story.”
Figures from Capital Economics, based on national data, suggest emerging market exports rose 5.2 per cent year-on-year in volume terms in the first six months of 2017, the fastest pace of growth since the first half of 2011.
With unit prices also rising, largely thanks to commodities trading at levels comfortably above those witnessed in the first half of 2016, the dollar value of EM exports has risen about 11 per cent year-on-year, as the first chart shows.
Separate figures from the CPB Netherlands Bureau for Policy Analysis, a primary source of data on trade volumes, suggest the pattern of growth is far from even, however.
Analysis of the CPB data suggest world exports rose 8.6 per cent year-on-year in the first half of 2017, with emerging market countries, at 12.1 per cent, comfortably outpacing the 5.8 per cent export growth chalked up by the developed world.
The strongest performance came from the Africa and the Middle East region. However, this was entirely a price effect, with unit prices rising 32.8 per cent and export volumes actually contracting by 0.5 per cent.
The figures are clearly driven by commodities, with the average Brent crude price 28.2 per cent higher in the first six months of this year than in the first half of 2016, iron ore up 42.8 per cent, and copper gaining 22.7 per cent.
However the next most successful region, the former Soviet Union, with export growth of 28.6 per cent, saw volumes rise by 10.2 per cent, on top of unit price rises of 16.8 per cent, as the second chart shows.
Kasper Stuut of the CPB says the difference in the dynamics of the two regions was “quite remarkable”. One possible explanation is that Saudi Arabia and other Gulf states have cut oil production, and thus exports, more than the likes of Russia and Kazakhstan, Mr Stuut says.
Another possibility is that an economic recovery in Russia and surrounding states may be stimulating a rise in intra-regional trade, helping bolster trade volumes.
Mr Jackson says Russia’s mining sector has increased production and exports this year, while the weakness of the rouble has made its manufacturing sector more competitive.
Elsewhere, the CPB data suggest Latin American exports have risen 12.3 per cent year-on-year, with higher prices accounting for the bulk of this, and those of emerging Asia by 8.6 per cent, with rising volumes the main driver here.
Capital Economics’ data also point to a wide variance at country level, with Indonesian exports rising 41.1 per cent year-on-year in July, ahead of Colombia, with growth of 37.6 per cent and Russia’s 22.8 per cent, with India and Turkey bringing up the rear, as illustrated in the third chart.
Both Indonesia (coal, palm oil, oil and gas) and Colombia (oil and other fossil fuels) are primarily commodity exporters, so rising unit prices are likely to be prime drivers of their rapid export growth in dollar terms.
This year has also seen emerging Asia increase its share of global imports to a record 29.2 per cent in June, according to TS Lombard calculations based on the CPB data.
While emerging Asia’s share of imports has been steadily rising as the region accounts for an ever-larger slice of the global economy, growth has been particularly strong over the past year.
With emerging Asia’s share of world exports, at 30 per cent, down a little from its 2015 peak, this does raise the possibility of the region losing its trade surplus in the foreseeable future for the first time since 2005, as the final chart shows.
Mr Harrison thinks this unlikely, however, given that he is pencilling in a modest managed slowdown in the Chinese economy next year, which would be likely to reduce its rate of import growth.
As a result, he has a positive view on global and emerging market export growth for the rest of this year, but anticipates a cooling in 2018.
Over at Capital Economics, Mr Jackson forecasts a continuation of solid growth in EM export volumes but a fading boost from rising unit prices as the impact of very low commodity prices in 2016 slips out of the year-on-year comparisons.
As such, he believes emerging market export growth in dollar terms will slow to about 7 per cent over the second half of 2017, but notes this would still be stronger than at any point since 2011, barring the first half of this year.
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