THE latest figures on Japanese exports, released this week, make for grim reading. Exports, an important driver of the Japanese economy, were 7.7% lower in October than they were a year earlier. That drop, the biggest in nearly seven years, is just the latest piece of bad news for the Japanese economy, which officially fell into recession this
It surprises nobody that Japanese exports to rich countries are down: they have been flat or falling for some time, with exports to North America, for example, failing to grow in 2007. More troubling is evidence that emerging-economy demand for Japanese goods has now also been hit. Exports to Asia are down by 4% and those to China fell for the first time in three years.
In the past few years Japan has come to rely, increasingly, on demand for its exports from developing and emerging markets. In 2007 its exports to Latin America and Africa grew by 25% and 22% respectively and exports to the rest of Asia, accounting for half of its total exports, rose by 12%. Now evidence is growing that the developing world is increasingly battered by the economic slowdown and so is losing its appetite for Japanese goods.
Rich countries in general, many of them already grappling with recessions, must now deal with the fact that trade is slowing: the World Bank expects global trade to decline by 2.5% in 2009, the first drop since 1982. Germany, which is also in recession, has seen exports badly hit. Rich-country exports are typically of expensive, complicated goods, demand for which is highly elastic—for example German heavy machinery or Japanese cars (exports of the latter fell by 15% in October).
What of the export prospects of countries that make the cheap clothes and other necessities that people keep buying even in lean times? Poorer countries have been accounting for larger shares of global trade flows in the past decade. The likes of China and Bangladesh, countries which supply discount retailers such as Wal-Mart, should expect to see exports faring better. Wal-Mart claims that it accounted for half of American retail growth (excluding car sales and restaurants) in October, which suggests poorer exporters may have a chance to shine.
Unfortunately, this picture is not rosy either. Although demand for poor-country exports may be holding up, trade finance (loans directly tied to cross-border transactions) is disappearing. Developing economies depend heavily on trade credit for finance, but the market for this has been severely battered by the global shortage of liquidity. In addition, banks which lend in this market have generally become more risk-averse (probably beyond reason). The World Trade Organisation estimates that there is currently excess demand in the trade finance market of up to $25 billion. It has convened meetings of export credit agencies and banks to try and get the market going again, and the World Bank’s private-sector wing, the International Finance Corporation, will double the ceiling on trade guarantees available under its trade facilitation programme to $3 billion.
Others are stepping in, too: The Reserve Bank of India has more than doubled the funds it makes available for banks to refinance export credit at favourable interest rates to $4.5 billion. Still Pascal Lamy, who heads the WTO, says that he expects the situation to deteriorate further. The Japanese and German export figures, grim as they are, may just offer a taste of the broader slowdown in trade that is under way.