Exports from much of Asia have been extraordinarily resilient over the past year. Despite a global collapse in GDP, shipments from the region expanded briskly. So with world GDP growth set to rebound, are Asia’s exports set for another boost? Not as much as you might think. The region’s manufacturers face headwinds maintaining their pace in overseas sales.

Trade surged despite the pandemic – and because of it. Emerging Asia kept its factories running with little interruption, filling the supply gap elsewhere in the world. But with the supply bottlenecks outside Asia starting to fade, the region is no longer the ‘supplier of last resort’ and manufacturers elsewhere are regaining lost ground.

However, the US could provide an even more profound reason why Asian exports may not get their customary lift from recovering growth elsewhere. During the pandemic, households bought goods instead of services and many of those items were produced in Asia. However, the recovery will likely be services-led, and services are less import-intensive.

Asian exporters could thus benefit less from economic recovery elsewhere than in the past.

In fact, households’ demand for goods could not just slow, it might even decline while GDP growth surges.

HSBC is forecasting US consumer spending growth for the second half of 2021 to be just over 8 per cent higher than last year. That’s pretty punchy. But if consumers revert back to their pre-pandemic ratio of services-to-goods purchases, spending growth on services could be almost 15 per cent in the third-quarter – the highest since the late 1940s – but demand for goods would slow sharply. Indeed, goods demand could contract in annual terms in the fourth quarter at a pace last seen during the 2008 Global Financial Crisis.

True, these are projections, not hard forecasts, and things might not turn out to be quite so dire. Perhaps US households will take longer to restore the pre-pandemic services-to-goods spending ratio. But it illustrates how – despite a strong recovery in growth – goods demand, and therefore exports from Asia, may not fare quite so robustly as during recoveries from earlier recessions.

Might a rebound in capital spending lift trade? Perhaps, but, if goods demand really slows, let alone contracts, would this really encourage a sharp rise in capital expenditure? And the relationship between global capital spending and Asian exports isn’t clear-cut. There have been times, including after the Global Financial Crisis, when shipments from the region actually slowed when capital spending rose.

However, across the world, inventories remain depressed. As economies normalise, even if demand for goods slows, restocking could provide a powerful kick to manufacturing and trade.

First published 5 March 2021.

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