Few companies have been hit harder by the severity and suddenness of the global economic crisis than Asia's manufacturers. With unemployment on the rise, credit tight, and uncertainty high after the financial meltdown on Wall Street, consumers in the U.S. Asia's most important customers slashed their purchases of the toys, blue jeans and flat-panel TV sets churned out by the region's factories. The consequences have been disastrous. Every major economy in the region, from Japan to Singapore, has seen exports contract sharply, usually by eye-popping double-digits. Taiwan registered year-over-year declines of more than 20% for five straight months starting in November. China saw year-over-year declines of more than 17% in January, February and March. Millions of Asians lost their jobs as tens of thousands of factories were closed.
Now there might be a glimmer of hope. Recent data shows that exports are starting to inch off their lows, an indication that the worst of the recession in Asia may be passing. In Singapore, exports rose 11% in March from February, the second straight month-on-month increase. Japan's grew by 2.2% in March from the month before, leading Merrill Lynch economists to speculate that "it is possible that exports are bottoming." Most importantly, China's exports rose 7.6% in March from February, after six straight months of contraction. "While exports growth is likely to remain weak in the coming months," Goldman Sachs economists Yu Song and Helen Qiao commented about China, "we believe the worst sequential slowdown probably is behind us now."
Some of the revival is due to the greater availability of trade finance, which had dried up as banks clamped down on lending in late 2008, hamstringing global trade. But China, the world's third-largest economy, is likely a more crucial factor in the turnaround. China sits in the middle of an increasingly important trading system within Asia. Countries like Japan, South Korea and Indonesia export capital goods, components and raw materials to China, where they are used to manufacture final products for shipment to the West. This network broke down as demand in the U.S. and Europe shriveled, but economists say China's stimulus program might be filling in some of the lost sales. Programs to spur domestic consumer spending in China have boosted purchases of items like appliances and automobiles. The success of the stimulus program, economists say, may be rejuvenating intra-Asia trade links and created a boost to exports from other Asian nations. Singapore's exports to China actually rose a substantial 14% in March from a year earlier, while those to the U.S. and EU fell 31% and 22%, respectively. "China is definitely coming on line and re-activating its call on the Asia supply chain," says Glenn Maguire, chief Asia-Pacific economist for Société Générale in Hong Kong. "That's clearly a positive."
If trade between Asian economies is picking up, that trend lends weight to the belief held by many economists that Asia could emerge from the recession ahead of the U.S. and Europe, based primarily on improved economic activity within the region. "Intra-regional trade will play a much more important role in a recovery (in Asia) than people thought," says Andrew Freris, senior investment strategist for Asia at BNP Paribas Wealth Management in Hong Kong. "And that is good news." (See pictures of the global financial crisis.)
There is still a limit to how far Asia can rebound on its own. Demand in the U.S. is simply too important to Asia's export machine for the region to experience a full recovery without an increase in American consumer spending. There are recent signs, however, that U.S. demand might also be poised for a rebound. The Conference Board's consumer confidence index rose in April by the most since 2005, signaling that American shoppers might be ready to start buying again. The U.S. government also revealed in late April that inventories in the U.S. fell by a record amount in the first quarter, which could mean inventories have been reduced so much that companies will have to start placing more orders to replenish them. That could spur Asian production and exports.
Economists, however, warn that exports are still greatly reduced from levels seen a year ago, so the improving statistics don't necessarily herald a full-scale economic revival. Japan's March exports to the U.S., for example, were less than half the amount sold a year earlier. Société Générale's Maguire says that he is encouraged by the recent figures, but not enough to drastically alter his outlook on Asia's overall growth. "We've definitely seen the low, the worst of the collapse of demand," says Maguire, "but we shouldn't be looking at a V-shaped recovery." In a time of gloom and doom, Asia will take any good news it can get.