Asia trade

Global trade flows shift to Asia

A new survey of business trends by Ernst &Young points to Asia dominating world trade during the next decade.
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Trade was top of the agenda at the Apec Leaders' summit in Hawaii (AFP)
<div style="text-align: left;"> Trade was top of the agenda at the Apec Leaders' summit in Hawaii (AFP) </div>

Global trade will continue heading eastwards and intra-regional trade in Asia will lead to a renewed concentration of global demand, according to an Ernst & Young paper published in conjunction with Oxford Economics this week.

The total value of international trade is set to increase from 30% to 37% of world GDP by 2020, while the balance of that trade is likely to shift permanently to the East. World trade in goods will total around $35 trillion, two-and-a-half times its value in 2010, and in services it will double to about $6 trillion. Asia-Pacific will experience the fastest rate of growth in global trade, led by China and India, which will alone account for almost one-fifth of global trade flows by 2020.

Although global trade collapsed during the financial crisis, it has since bounced back, led by trade among emerging economies. Global trade was dominated by Western nations at the start of the 1990s, but their share has declined markedly and this trend is set to continue through to 2020.

“While the advanced economies continue to battle through the financial crisis, the rapid-growth markets are going from strength to strength and are an increasingly significant part of the global economy. They will become an even more dominant force in global trade and as a result businesses are going to have to adjust their strategies to reflect the increasingly regional pattern of world trade that is developing and will intensify over the next decade,” said Gerard Dalbosco, managing partner, Asia-Pacific markets, at Ernst & Young

Measured at current market exchange rates, the global GDP share of the emerging markets is set to increase from around 34% in 2010 to 48% by 2020. China’s share alone is forecast to surge from 9% to nearly 20% over this period. These gains will be at the expense of the advanced economies.

The analysis for the report, called Trading places — the emergence of new patterns of international trade, applied Oxford Economics’ suite of global economic and industry models, and included a survey of 690 senior executives across 17 different markets, and interviews with business leaders to find out what strategies they are deploying.

India and China will steer the continued rise of the emerging markets and, together, these economies will become more important to global trade than the US and eurozone, concluded the report. Almost half the Asia-based respondents to the survey expect to export more than 60% of their output in five years’ time, compared with less than a fifth of the companies in the Americas.

Asia will still to be the most dynamic region in terms of trade, with the fastest growth of exports in goods occurring within the region itself. A trade cluster within Asia has already been formed and China has now become the most significant export destination for most Asian economies. The increasing importance of regional supply chains is a trend that will help to reinforce the importance of both China and India within the overall pattern of global trade.

“The fastest growth of merchandise exports will occur within Asia itself,” said Dalbosco. “More specifically, it will be China and India that lead this expansion. Our bilateral trade forecasts show the fastest growing trade route lies between these two economies, with Indian exports to China growing at an average annual rate of almost 22%, while flows in the opposite direction expand at an average annual rate of 18.5%.”

India and China also represent the quickest growing source of demand for exports from countries outside the region. The projections show that two of the most rapidly growing trade routes will be US exports to China and India, which Ernst & Young see expanding at an average annual rate of almost 16%. China’s exports to Europe, at more than $1 trillion, will be almost twice as large as US exports to Europe.

In addition, by 2020, the total flow of services trade from Europe to Asia-Pacific (excluding Japan) will be bigger than to North America. One of the keys will be the growth of trade in financial services.

Furthermore, Ernst & Young estimates that the shift towards global outsourcing of production, as well as the growth of regional supply chains to serve the rapid expansion of demand from expanding markets, will compress the share of the advanced economies in global trade from a little over 60% in 2010 to around 55% by 2020.

However, Dalbosco warned that with the level of global supply changing so rapidly and demand uncertain, there are a number of alternative scenarios and risks that could threaten or even boost global trade growth.

“Perhaps the most dramatic would be a currency realignment scenario, implying a rebalancing of domestic demand between the US and Asia-Pacific region. This would have significant impacts on projected patterns of trade. Alternatively, even a partial acceleration of trade liberalisation could drive a larger-than-expected rise in global trade flows,” he said.

Meanwhile, the report offers comfort to beleaguered exporters in the US and Europe. Ernst & Young’s forecasts imply that over the next 10 years the US could capitalise on its strength in exporting to Asia, reversing the decline during the past decade. And Europe’s exports to China could rise by $370 billion during the next 10 years.

And China will not be immune from its own vulnerabilities. The country’s dominance in low-end manufactured goods will increasingly come under pressure from lower-cost countries such as Bangladesh, Vietnam and parts of Africa.

¬ Haymarket Media Limited. All rights reserved.
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