Asian Trade: Surging Imports, Slowing Exports

by Matt Robinson, Moody's Analytics, 06 September 2010

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Risk Management

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business sentiment consumer sentiment exports fundamentals imports trade deficit

The latest trade data show Indonesia, Thailand and New Zealand running monthly trade deficits, while surpluses in Australia and South Korea narrowed.
Strong domestic demand is driving imports growth across the region, while the deteriorating global outlook is causing exports to slow.
Fundamentals across the region nevertheless remain positive.

Foreign trade data across the Asia-Pacific region this week show exports beginning to weaken while imports power ahead. Several economies' trade balances slipped into deficit amid an increasingly uncertain outlook for developed economies in North America and Europe. But while near-term trade prospects are shaky, fundamentals across the region remain positive.

Imports grow

Buoyed by strong domestic demand, imports have accelerated in recent months. Low interest rates and robust consumer and business sentiment are fueling household consumption and business investment, supporting imports of consumer durables, machinery and equipment. July trade results in Australia and New Zealand confirm this trend. Australia’s trade surplus fell nearly in half in July, partly because of a decline in coal export prices but equally a result of surging imports of capital and intermediate goods.

Robust domestic conditions in Australia and a strengthening aussie dollar have encouraged business investment. The increase in imported capital equipment and intermediate goods will drive production and business investment results in coming quarters, further entrenching Australia’s sustaining expansion. Across the Tasman Sea, rebounding economic activity and recovering business investment are having a similar impact. The strong rise in imports was enough to tip New Zealand’s trade balance into deficit for the first time in seven months.

Shifting to deficit

Thailand and Indonesia also reported trade deficits for July. In Indonesia, the trade balance has been trending downward since the beginning of the year. Low interest rates have led to surging consumer lending, fueling strong demand for imported durable goods. Business investment has meanwhile boomed, supported by easing credit standards and high capacity utilisation in some industries. This has brought surging imports of capital equipment. While the strength of imports growth saw Indonesia record its first trade deficit since April 2008 in July, imported capital goods will increase the emerging economy’s productive capacity and enhance its growth prospects.

In Thailand, the sharp turnaround in the trade balance—from a US$2.5 billion surplus in June to a deficit of US$791 million in July—was driven by both strong growth in imports and slowing external demand for its exports. Similar to the trend elsewhere in the region, Thailand’s exports growth slowed from 47.1% y/y in June to a relatively meager 21.1% in July.

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