Economic Notes for September 1 - Global Trade Economy Still in Serious Dichotomy
The economic storm has yet to truly emerge, and the trade landscape of major exporting economies continues to decline.
The global economic storm may not have arrived yet, but here are some noteworthy data points:
South Korea, the "canary in the coal mine" for the global economy, saw exports plunge 16.5% in July year-on-year, the biggest drop in three years. Vietnam, which has absorbed a lot of industrial transfers in recent years, saw exports decline for the fifth straight month in July, the longest losing streak in 14 years.
Mainland China, the "world's factory", saw July exports tumble 14.5%, hitting a new low since March 2020.
Taiwan, home to TSMC, has seen 11 consecutive months of export declines.
India saw exports plunge 22% in June, while Canada, a major commodity exporter, posted a trade deficit for the second straight month.
What do these data points suggest?
Photo by Chris Liverani on Unsplash
First, the risk of a global economic downturn has not yet abated.
The world is still grappling with the effects of Fed monetary tightening and weaker-than-expected consumption and investment demand in China this year.
But to some extent, many of the landmines planted by the strong US dollar in global finance have yet to fully detonate.
For example, a recent case in China is Evergrande defaulting on its foreign debt. The combination of currency devaluation and Fed rate hikes has driven up Evergrande's debt servicing costs by at least 20%.
(Note: Evergrande is one of China's largest private real estate developers, with a peak market cap of HK$408.9 billion, or US$52.1 billion)
In addition, the downturn in commodity demand will prolong the production cycle for global manufacturing. Export-oriented economies driven by manufacturing will experience much greater cyclical swings compared to those reliant on services, consumption and domestic demand.
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