Asia leads the way- Trade & output highlight the recovery:: Macquarie

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Asia leads the way
Trade & output highlight the recovery
Event
 The recent soft patch in the Asian cycle cannot disguise the exceptional
nature of the recovery of the past 18 months compared to the rest of the
world.
Impact
 Even in other developing economies, trade volumes for September are still
2.2% below the pre-Lehman peak (which was April 2008), while among the
developed economies trade is down 8.8%. In contrast, trade flows across
emerging Asia are 8.3% higher than previous peaks, with imports having
recovered more than exports, as the region makes a contribution to the global
recovery.

 In the two years from the pre-crisis level of 3Q08 to 3Q10 Asian exports rose
10.0% while imports climbed 17.0%. The main beneficiaries of the implied
boost to external demand have been Latin America and the Middle East /
Africa, which saw export growth comfortably outpace imports.
 In contrast, exports and imports from the developed world both fell by 4.8%
from 3Q08 to 3Q10, which we find somewhat surprising. Considering the
scale of the recession, and the continued weakness of demand in the G3,
imports should have performed worse than exports, so at the risk of agreeing
too much with Ben Bernanke, this could be an indication of over-valued
exchange rates compared to the developing world.
Analysis
 Industrial production has fared even better than trade in Asia, growing 22.5%
from 3Q08 to 3Q10, as monetary and fiscal stimulus combined with
underlying structural demand helped to drive recovery across the region.
Over the same two-year period, production elsewhere is still down 5.2%, with
developed economies lagging. Japan is down 8.5% and slipping back down
again.
 With industrial output across emerging Asia recovering more strongly than
trade, and with net exports making a negative contribution to growth, this is
persuasive evidence, in our view, that local demand in the region has been
the main driver of recovery.
 The data behind the charts on the left only extend as far as September, but
elsewhere there are tentative signs that activity is beginning to reaccelerate.
Much of this comes from China, but there are also encouraging signs in
leading indicators of trade from Taiwan and Japan. If so, then this could imply
a renewed boost to global activity, although it also implies some problems for
policy-makers in the region, as it will intensify the risk of inflation.