- Exports of China, Japan, South Korea and Taiwan have fallen even though the world's economic recovery has strengthened.
- A significant global imbalance has been largely corrected.
- There are foreign exchange and reserve implications.
This Great Graphic was posted on Barry Ritholtz's Big Picture blog. He found it in the Wall Street Journal, which got it from Thomson Reuters. The chart depicts year-over-year growth in quarterly exports from the four large East Asian economies. Using quarterly instead of monthly data arguably helps reduce the noise to signal ratio.
The graph shows that Asian exports soared as fiscal and monetary stimulus in the US and Europe ended the deep downturn triggered by the end of the historic credit cycle in 2009. They peaked in 2010 and have simply not recovered. Claims that the downturn is cyclical do not appear convincing.
The global recovery has deepened and broadened, yet export growth has steadily weakened. Such a decline has, in the past, only been associated with economic downturns. This could be a sign of a deeper structural shift in the world economy. The G7 and G20 calls to reduce global imbalances has taken place.
The US current account deficit has been more than halved. Japan has swung from a trade surplus to a trade deficit. China's current account surplus has been halved. The deficits of peripheral European countries have fallen through a combination of domestic demand compression and internal devaluation (i.e., deflation and/or disinflation).
There are two significant exceptions. The UK continues to run large trade deficits. The combination of growth differentials and sterling's strength warns of difficulties to correct the imbalance in the near term. The other exception is northern Europe and here Germany's surplus stands out.
One implication of the weaker Asian export growth is that it reduces one source of reserve growth. Of course, China's reserve growth is more a reflection of capital flows and its intervention than trade. Intuitively, one might expect that less demand for reserves reduces the demand for dollars, which is still the primary reserve asset. However, under current conditions, slower reserve growth may be more euro negative as it has been a beneficiary of the diversification of new reserve accumulation.