Monday, December 22, 2008
Not Precisely Conducive To Holiday Spirits
In 2009 world trade is going to contract. We just don't know by how much. Here's a gander on some of the key Asian stats:
Japan: November trade stats announced under the headline "Kablooey":
Exports fell 26.7 percent from a year earlier, the Finance Ministry said today in Tokyo. That was more than the 22.3 percent decline estimated by economists and the sharpest since comparable data were made available in 1980.Exports to the US slid 34% YoY. Exports to Europe fell 31%. Exports to China fell 24.5%. Exports to all of Asia fell 26.7%, and exports to Russia and the ME also fell, which is not surprising when you think of property busts, oil prices, and Russia's industrial production contracting 8.7% in November after a minor October rise. Just a few short months ago some "experts" were caroling that the US/EU decline would be compensated by growth in trade with China, and that plus strong Japanese domestic demand (household spending has been declining for over half a year) would keep Japan from taking a major economic fall. The famous decoupling, doncha know.
Of course that was a fallacy because about 1/3rd of Chinese GDP is based on exports, and a hefty chunk of those exports go to the west.
Chinese exports and imports also fell:
The big drop in imports should not surprise anyone; China's housing market is contracting (Jan to Nov housing sales were down 18.8%) and the government's plans to stop more employment cuts in the state-owned enterprises include plans to buy stockpiles of metal, etc from domestic operators. China will try to stimulate its economy, but the corollary is that its imports will drop relative to exports. Trade with India has been one of China's bright spots, but....
We don't have November data for India, but in October exports were down 12% and industrial production declined slightly, and in November excise taxes were down about 15%. The auto business is impacted:
While car and two wheeler sales dropped 24 per cent and 15 per cent y-o-y in November, commercial vehicle (CV) sales slumped 48 per cent.India's housing market is also suffering, and a series of initiatives for smaller mortgages were just announced, mostly in the form of interest rate caps. However, those initiatives make mortgage lending for that category stunningly risky, so I am not sure how much a stimulus will be produced.
Not surprisingly, Malaysian exports dropped in October. Singapore November non-oil exports dropped over 17% on a YoY basis. Thailand's November exports dropped over 18% on a YoY basis.
Indonesia is seeing the weakening too, and the attempt in this article to slot in expectations for 2009 was interesting:
If non-oil exports continue to fall at the same rate as in October until December 2008, then exports for the whole of 2008 will be around $108 billion, still a $15 billion increase over 2007. During the same period, oil and gas exports could reach $29 billion, or a 30 percent increase over last year.I don't know how realistic that assumption is. Aside from the knock-on effect as the weakness diffuses rapidly through Asia (for example, Australia's economy is sure to be further affected in the next few quarters.), the next big global problem will be the situation of European banks.
If the December 2008 level of non-oil exports holds for the next 12 months, then exports in 2009 will be worth $96 billion -- a drop of 10 percent from this year -- while oil and gas exports, because of lower prices, will decline from $29 billion to $22 billion. Total Indonesian exports in 2009 will be around $118 billion -- a decline of 17 percent from the 2008 level.
These projections are based on the assumption that the draconian measures taken by industrialized countries start to show results in the second half of 2009.
The rapid rise in lending to eastern European and some ME economies is going to snap back with a vengeance as the eastern European slump keeps building: Czech industrial output fell 8.7% YoY in October, Hungarian industrial output fell 7.2% YoY in October, and Polish industrial output fell 8.9% in November. These were the stronger eastern European economies. There is not much near-term hope for them; October German industrial output fell 3.8% on a YoY basis, October French industrial output fell 6.9% YoY, October Italian industrial output fell 6.9% YoY, October Spanish industrial output fell 12.8% YoY, European new car sales dropped by 25% in November, and European industrial output declined 5.3% YoY in October.
Needless to say, the US is not prepared to pick up the global slack; US industrial output fell 4.1% in October and 5.5% in November on a YoY basis.
A great deal of the fall in industrial output is related to slow global car sales. However drops of this magnitude show up very quickly in employment income and household income, and thus domestic consumer consumption. In short, the expected result would be slower home sales and reduced spending on construction of consumer and commercial real estate. We are also seeing this, and it is a doubly painful blow coming on the heels of a nearly global property bubble.
For US readers, the most shocking statistic should be November rail freight versus YTD rail freight. YTD total US rail freight volumes fell. Carloads declined 1.4% and intermodal declined 3.5%. That includes November figures - and in November, US carloads fell 10.1% and intermodal declined 7.9%. The world cannot experience what it is experiencing without US producers taking a corresponding hit, and those statistics give us a first read on magnitude.
I see by posts like this that I have not gotten through to people who are well-qualified to understand what I am trying to explain, and therefore I conclude that I have not communicated well. This post is an attempt to remedy that error.
The US is bound for a very long recession that will be the worst since WWII. From peak to trough GDP is likely to contract 5% or so. What you see now on the consumer/business side is not indicative; this recession may be a year old but it is just picking up steam, and the consumer recession will now coincide with the double dip commercial recession beginning in the first quarter 08.
World trade is going to contract next year. There is nearly global overcapacity in most production areas, and worst, the overcapacity is substantial enough to cause the costs of production to rise for many industrial products. The steep falls in the costs of energy are the end of the bubble and the attempt of the global economy to adjust for rising costs of production.
Thus any policies which constrain trade or increase the costs of production are not going to stimulate this or any other economy. Obama's 5 million green jobs are a chimera; they could only come at the cost of 10 million other jobs. Carbon cap and trade schemes are suicidal. Mandates to try to up expensive renewable energy production are suicidal, and yes, that means solar and wind, neither of which are currently competitive on a large scale.
Increased production of energy in the US is probably necessary to limit the trade imbalance, but only if the cost of production of that energy is largely in line with conventional sources. Conservation of energy will pay doubly, but only if it puts money back into the pockets of companies and consumers.
Economic efficiency is all that matters.