By Michael Burke, B&M Research
The emerging market economies as a bloc have experienced a surprising improvement in export volumes, despite the weakness of demand in the leading economies. One key issue is the importance of China’s exceptionally strong growth for the exporters of the region. However, the strength of export growth stretches far beyond the Asia region.
One key factor is that commodities prices have been rising over a prolonged period – over one year – despite low world demand growth. Emerging market economies as a bloc are highly dependent upon commodity production, and benefit from rising commodities prices. In addition, the ‘high-value’ products in which many emerging market economies specialised over the last period have become increasingly commoditised, most spectacularly in the area of computer chips. As a result, even after restructuring, the Asian currencies’ fate, post-crisis, is now thrown back increasingly on commodity and near-commodity production.
Therefore this rise in commodities prices, itself partly a function of increased global central bank liquidity, has a beneficial effect on emerging market exports. In addition, import demand in some of the leading economies has improved over the recent period.
In the table we show how these trends in commodities prices and import demand in the industrialised countries have impacted individual emerging market economies’ exports.
Export Growth (% change year-on-year, US$)
This is only the third time that every single emerging market economy has posted a positive number for export growth over the last four years. In the very near-term, some softening of commodities prices places a question mark over the sustainability of these growth rates. It is certainly the case that commodity price indices have decelerated or even topped out. This is true of the trend in both the JoC and CRB commodities indices since the beginning of 2001.
There is also a high degree of correlation between subsequent currency movements and these simple export trends, so that the outlook for the emerging market currencies as a bloc appears to be very positive versus the US dollar.
One of the strongest growth rates for exports is that recorded by Poland. In general, as Polish exports improve, the zloty appreciates. A similar picture arises with regard to the growth rate of South Korean exports and the Usd/Krw. Among the emerging market bloc, these two currencies are expected to be among the strongest over the next period.