The emerging Asian economies present both dangers and real opportunities for New Zealand export businesses. Mark Hoppe takes a quick whistle-stop tour through the markets.
New Zealand exporters can benefit significantly from targeting Asian markets, particularly given their large populations and growing economic prosperity. Kiwi exporters provide primary produce such as meat and dairy to North Asian markets, along with a range of manufactured and technologies products. Together, Japan, China, South Korea, Taiwan, and Hong Kong account for 33 percent of New Zealand’s goods exports.(1)
Not to be left out, South East Asian countries including Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam are all increasing in importance to New Zealand exporters. New Zealand has a free trade agreement with the Association of Southeast Asian Nations (ASEAN), of which these countries are members. Goods traded with South East Asia currently accounts for 10 percent of New Zealand’s exports.(2)
For the past decade or more, Asia’s emerging economies have helped to power global growth. This has happened in an environment of low interest rates and fiscal stimulus programs in Western countries. But, as the outlook changes and rates start to rise, the region is experiencing unfamiliar economic and political change.
Given New Zealand’s strong reliance on Asia as an export market, it’s important to understand the current political and economic landscape so exporters can make smart business decisions. Trade credit insurance can also help mitigate risks when doing business with partners in these countries.
China’s political stability sees it exerting growing international influence and power projection. However, China is experiencing an economic slowdown that is likely to continue in 2019, which could be exacerbated by the still-unresolved trade tensions between China and the US. Chinese authorities have taken measures to support the economy such as tax cuts, but still need to manage an orderly financial deleveraging process. It’s likely that China will experience a more severe slowdown due to financial imbalances and significant excess capacity in some sectors.
Business insolvencies are therefore likely to increase in 2019 and highly-indebted companies in industries with excess capacity, including aluminium, cement, coal, and commodities, are very vulnerable. Listed and state-owned businesses are likely to be safe to do business with but some organisations will suffer from limited financing facilities so it’s important to exercise caution when setting up new relationships.
The Indonesian government has improved economic stability but productivity remains relatively low, hampered by poor infrastructure and a lack of skilled labour. Corruption and bureaucracy at the local government level are rife.
Since Indonesia doesn’t rely on exports, it is less susceptible to global trade downturns than some other countries in the region. When the rupee came under pressure in 2018, the government responded with import tariffs on a variety of consumer goods to lower the import bill, which could affect New Zealand exporters’ competitiveness. In 2019, exchange rate volatility is possible but will likely be offset by strong economic performance.
Domestic demand is expected to underpin economic expansion and wages are rising. The 2020 Olympics in Tokyo are driving higher government and business investment. However, a shrinking and aging population make Japanese organisations vulnerable with many industries already facing difficulties due to labour shortages.
Malaysia’s economic growth is expected to slow in 2019 due to lower export growth. Domestic demand is strong, with increasing disposable incomes. However, higher inflation and rising domestic borrowing rates could lower household purchasing power, which could affect demand.
Human rights concerns regarding President Duterte’s government’s violent crackdown on the drug trade, along with uncertainty over some economic policy initiatives, have increased uncertainty among investors. Consequently, expansion will slow down over the next two years although imports will outweigh exports. And, the Duterte administration is heavily promoting infrastructure projects that will facilitate smoother imports, including rail networks, ports, roads, and airports.
Singapore’s economy is relatively strong but it’s also susceptible to risks from an escalation of the US-China trade dispute and a hard landing of the Chinese economy. However, the economy is fairly resilient and strong fundamentals remain in place.
Geo-political tensions on the Korean Peninsula have eased slightly but remain unpredictable. Any escalation of the conflict could have an adverse effect on business and household confidence. Korean households have high debt levels but fiscal support will sustain economic expansion. South Korea is also vulnerable to escalating US-China trade tensions and a Chinese hard landing. South Korea remains heavily export-oriented.
Taiwan is mainly export-oriented, presenting little opportunity for New Zealand exporters. Its heavy dependence on China makes it vulnerable to an economic downturn and increasing competition from Chinese manufacturers.
Political tensions are ongoing despite a new government preparing to take over. High household debt is an issue but banks and government finances remain sustainable.
Vietnam remains a communist state but economic reforms are ongoing. Vietnam relies heavily on exports and its relationship with China, making it a low-priority target for New Zealand exporters.
Mark Hoppe is managing director, Oceania, for Atradius.