Reasons to be Mostly Cheerful

• NE Asia's Exports Remain Robust
• G3 Imports Have Not Collapsed
• China's Exports are Flagging for Structural, not Cyclical, Reasons
• Global Domestic Demand Retains Momentum
• NE Asian Demand is as Big a Drag as European Demand

Back in December, when Europe's finest were last bewailing that their jerry-built Euro project could plunge the world into a 1930s-style Great Depression, world trade data showed that "so far not only is the slowdown nothing like what happened at the end of 2008, but it's less dramatic even than the slowdown which accompanied the near-recession of 2000-2001.''

And it's still true: the world trade environment remains in decent health despite the disaster being engineered in Southern Europe. In the three months to February, imports by G3 nations rose 7.4% YoY, and in the three months to March, NE Asia's exports rose by 4.4%. In 6m momentum terms, G3 imports are losing sequential momentum negligibly, whilst NE Asia's is slightly positive. 

Over the last couple of days, we've had trade data which pushes the argument further.  March trade data from the US came in remarkably strongly today, with imports up 5.2% mom and exports up 2.9% mom. We've had surprisingly strong March trade data from Germany, too, showing exports up 0.9% mom, and imports up 1.2% mom (and let's not forget – Germany's imports comprise nearly 52% of the Eurozone total). But we've also had  shockingly bad April numbers from China: exports up just 4.9% yoy and imports virtually static (up 0.3% yoy).

Here are five things the data is telling us. 

First, NE Asia's exports remain robust – there's still no repeat of 2001, let along 2009, showing up in either YoY or momentum terms.  

Second, the reason why NE Asian exports remain relatively buoyant is that G3 imports have slowed only mildly. This has been achieved because a surprisingly mild slowdown in European and Japanese demand has been countered by a robust demand from the US.

Third, China's export-problem continues. I have argued for some time (in detail, here) that since 2009 China's extraordinary top-line export numbers disguise a deeper failure – one in which ever-more expensive investment efforts have yielded ever-decreasing gains in market share. We should expect that trend to become more obvious this year, simply because this year Japan's export-sector isn't crippled by  supply-side disruptions. In fact, so far this year, Japan is no longer losing market share of NE Asia exports at all.

Fourth, right now the slowdown in NE Asia is as big a problem for world trade as the Eurozone's problems.

Well, you aren't going to read it in the newspapers but it's there in at least three sets of data. First, the details of China's 1.5% mom fall in exports during April, which show that  exports to the EU rose 0.2% mom, and exports to the US fall a relatively mild 1.7%. What killed China's numbers in April were exports to Asia: to Japan they fell 5.9% mom, to Korea 6% mom, to Taiwan 5.9%!

Second, if our horrified attention is fixed on Southern Europe it is difficult to hold in mind the fact that Germany accounts for around 52% of total Eurozone imports. Greece is spectacular, but so too, in the opposite way, is Germany's importing track record so far this year: up 2.4% mom sa in January, up 3.6% in February, up 1.2% in March.

Third, I directly track changes in momentum in domestic demand in the US, in NE Asia and in Europe (taking Germany, France and UK as the major economies). When taken as a GDP-weighted aggregate, it tells the same story as our trade data – the world economy is not falling off a cliff. I shall go into more detail about this next week.

When you strip out the momentum changes in the various regions, the geographic pattern is surprising: the US is once again leading the world economy, the major economies of Europe have just about reversed the loss of momentum seen during the second half of last year, and NE Asia's economies are not doing much more than marking time.

World Trade: Still No Great Depression

Back in December, I pooh-poohed the IMF's warning that the world might be tipping back into a new 1930s-stye Great Depression by looking at what the global trade data was telling us (see Trade Data vs 'The New Great Depression'). I concluded that 'so far not only is the slowdown nothing like what happened at the end of 2008, but it's less dramatic even than the slowdown which accompanied the near-recession of 2000-2001.'

Three months later this is still the case. The hinge of world trade remains the extraordinarily close relationship between what the G3 imports (US, Eurozone, Japan), and what Northeast Asia exports (China, Japan, Korea, Taiwan). Usually, it's hard to slip a cigarette paper between their changes in momentum.  

We have data for G3 imports for January, which shows imports up 6.8% YoY in dollar terms (US up 10.1% YoY, Eurozone up 0.1%, Japan up 17.8%). We also have NE Asia's export data for January and almost all of it for February too (for Japan we are working from the first 20 days data). That shows exports up 12.1% YoY (China up 18.3% YoY, Japan down 1%, Korea up 20.6% and Taiwan up 10.3%). No doubt the February export data is flattered by the rebound from January's Chinese New Year, but the fact remains that the 6 months trendline for sequential momentum broke into positive territory in February for the first time since August. Moreover, February data from both Singapore and Taiwan suggests that the squeeze on electronics exports appears to have relaxed (see Shocks and Surprises, Week Ending March 18^th).

The chart below shows how the current situation differs both from 2008/09 (obviously) but also remains far better in both YoY terms and underlying sequential momentum than in 2000/01.  

One further note: whilst a better-than-expected trading environment will be welcomed by almost everyone, it does continue to shine a light on China's underlying problem – that increases in its market-share are now won increasingly expensively in terms of investment spending (see this piece). China continues to win market share, but only slowly now. Whilst my best forecast is that China can expect its export total to grow around 10% this year, this no longer matches the c19% growth in China's capital stock. In other words, even in these conditions export growth will no longer be sufficient to support asset turns, return on capital, and private sector cashflows.