A predicted recession in the US and EU keeps getting delayed by another quarter. But news of the unexpected resilience of these economies appears not to have reached Asia, where lower export numbers are attributed to an economic slowdown in the US and EU. The supposed slowdown is difficult to find in the macroeconomic data — GDP numbers continue to outperform expectations, real wages are up and unemployment is down. Inflation remains stubbornly persistent, but that is evidence of an overheated economy, not a slowdown.
Rajiv Biswas, Asia-Pacific chief economist for S&P Global Market Intelligence, suggested in a recent article about Vietnam’s economy that “the economic slowdown in the US and EU, which together account for 42% of Vietnam’s total goods exports, has resulted in a significant weakening in exports during the first four months of 2023, with Vietnam’s total goods exports declining by 13% [year over year].”
Vietnam is not the only market where lower exports are being attributed to an economic slowdown in the US and EU. Singapore’s slowing GDP growth rate was attributed to weak demand in the important export markets of these economies. A decline in first-quarter 2023 GDP growth in Taiwan was also attributed to weak electronics demand in the US, EU and mainland China. In China, weak demand in the US and EU due to high inflation and interest rate hikes was the main obstacle to the strong return of Chinese exports.
The question naturally arises: How weak is demand in the US and EU? Surprisingly, the answer is that demand looks quite strong. In the US, orders for durable goods increased 1.1% month over month in April. This is consistent with an estimated 1.2% year-over-year increase in consumer spending for 2023, according to S&P Global Ratings. According to S&P Global Market Intelligence, the nominal trade deficit for the US widened in April by $13.4 billion to $77.6 billion, reflecting an increase in imports. The EU economy has also been unexpectedly resilient. Although some countries in the eurozone have fallen into recession, the EU is expected to experience positive GDP growth in 2023.
Demand remains healthy in the US and EU, but Asian exports are undeniably declining. There could be several explanations. One reason is that inventory levels in the US and EU are returning to pre-pandemic levels. During the supply chain disruptions of the past three years, many retailers in the US and EU were forced to maintain larger inventories in warehouses to avoid shortages on store shelves. As supply chains have normalized, retailers have attempted to “sell down” their inventories. This would temporarily reduce their dependence on imports from Asia and lead to smaller orders.
The other reason is that ongoing geopolitical tensions may be leading US and EU firms to look for suppliers closer to home. While it is unclear how effective concepts such as “nearshoring” or “friendshoring” are on global trade, this could account for an increased trade deficit in the US with falling exports from Asia.
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