Marked Recovery in Exports to East Asia It appears that the currency and economic crises in East Asia that began in the summer of 1997 have, for the time being, been overcome. Recently the rates of economic growth for the newly industrialising countries (NICs) in south-east Asia have been revised upwards by a considerable margin. The efforts made to achieve economic stability have clearly borne fruit. Thailand, the country from which the Asian crisis had emanated, was even in a position to decline to accept a loan made available to it - by the IMF to its full value.1 The sharp decline in German exports to the East Asian NICs that began in the late summer of 1997 bottomed out towards the end of 1998: in the fourth quarter of 1998, German exports were around 40% down on the high level attained before the onset of the crisis. Since the start of 1999, exports to East Asia have risen markedly. However, the losses incurred in the wake of the crisis are still far from having been recouped.
Sharp temporary increase in the German current account deficit The sharp decline in exports in 1998 (cf. figure 1) against the background of a continued slight rise in imports - meant that Germany's traditional deficit in goods trade with East Asia increased from DM 19.6 to DM 36 billion. The major factor behind this was the turnaround in the balance of goods trade with the newly industrialising countries: following a surplus of DM 8.5 billion in 1997, a deficit of DM 3.3 billion was recorded for 1998 (cf. table 1). In the first haft of 1999, imports from the NICs exceeded exports there by DM 2.1 billion. Although during this period nominal imports have remained roughly constant compared with the previous six months, and there was a marked increase in exports, it needs to be recognised that the ]eve] of exports is now substantially below that of imports. In real terms, German imports from the NICs increased only slightly. Alongside the continued weakness of domestic demand in Germany, the fact that the competitive advantages of the NICs resulting for the depreciation of their currencies has now been reduced
by real currency appreciation certainly also played a part. Imports from Japan, too, have been falling slightly since mid-1998. Only in the case of imports from China has growth been maintained, and indeed in the second quarter of 1999 import growth accelerated rapidly (cf. figure 2). Germany's traditionally substantial deficit in goods trade with China narrowed slightly in 1998, a trend that continued in the first half of 1999. Exports to China grew faster than imports from there, but the import level is still around twice as high as that of exports. In goods trade with Japan the export/import ratio was similarly unfavourable for Germany. There was a slight fall in the deficit during the first half of 1999 - compared with the same period the previous year - however, resulting from a slight decline in imports and a small rise in exports, reflecting, not least, the sustained appreciation of the yen against the D-Mark (cf. figure 3). Overall, the deficit on the balance of goods trade with East Asia rose significantly in 1998 - by more than DM 16 billion. In the first half of 1999 the deficit remained more or less constant on the previous year, at DM -16.7 billion, but compared with the second half of the year, the deficit has fallen considerably. Germany also usually posts a deficit in services trade with East Asia. In 1998 this deficit amounted to just around DM 1 billion, however. The deficit results
Figure 1
G e r m a n Exports 1 by Region i.i 240
.... 220 . . . . . .
i::': 2oo i... 180 :: ::: 160 ::::: :+!:: 140 :::: 120
++,:,t;a+ a n d + s + . . . . . /
. . . . . E. .u.r .o.p.e.a.n. . .reform . . . . . . .countries ...
P~-- \
-
\~" ," . . . . . I # m B ~
/1
-- . . . . . . . . . . . . . . . . / . . . . . . . . . . . . . . . .
_ / _ . . , :
4'
. . . . . . . . .
:" 9
EU +'~oo
o*
~176
::: lOO / 'y:
1 According to the Neue Zarcher Zeitung (22.9.1999, p. 10), Thailand accepted just US-$13,47 billion out of a loan package worth US-$17.2 billion.
1993 = 100
80
'''1 1993
''' 1994
''' I'' '1'''1' 1995 1996 1997
''1' 1998 99
I:~r162
1 Special trade, seasonally adjusted using the Berlin Procedure (BV4). - - 2 Southeast Asian newly industrialising countries, plus Japan and Chin~Hong Kong. Sources: Federal Statistical Office; DIW calculations.
11
Table 1
Germany's Balance of Payments with Selected East Asian Countries D M millions ~:, ::: :i:~=~ ,~ ~:
......
:
...........
: "
..............
~=i~=~ ;
~:
~.'3~med:~propel~'Yi:in~come~:;.~;:;,
/:. :::
::)i'
;!::Balance i Current:
countries in East Asia 1995
71 161
88 590
-17 429
10 727
11 451
-725
5 346
6 262
-917
-696
- 1 9 768
1996
75 805
86 749
-10 944
11 593
13 154
-1 562
5 657
6 493
--836
-576
- 1 3 918
1997
78 682
98 261
-19 579
12 639
14 112
-1 473
7 124
7 555
-430
-548
- 2 2 033
1998
65 761
101 716
-35 956
12 388
14 705
- 2 318
5 535
7 920
- 2 385
-621
-41 280
1998 I st h
33 466
50 953
-17 488
5 815
7 401
-1 586
2 515
4 108
-1 593
-245
- 2 0 910
1998 2nd h
32 295
50 763
-18 468
6 573
7 304
-732
3 020
3 812
-792
-376
- 2 0 370
1999 1st h
32 784
49 488
-16 705
5 543
6 317
-775
1 786
3 935
- 2 151
-217
-19 844
south-east Asian NICs3 1995
42 045
36 720
5 325
5 614
8 142
- 2 528
2 721
2 716
4
-393
2 408
1996
44 260
34 915
9 345
6 487
9 085
- 2 599
3 041
2 878
163
-383
6 527
1997
47 967
39 468
8 499
7 386
9 920
- 2 534
4 171
3 404
768
-381
6 351
1998
36 027
39 371
- 3 344
6 643
9 722
- 3 079
2 633
3 554
-921
-307
- 7 652 - 3 337
1998 1St h
19 011
19 533
-523
3 155
4 948
-1 793
963
1 844
-882
-140
1998 2nd h
17 016
19 838
-2 821
3 488
4 774
-1 286
1 670
1 710
-39
-167
- 4 315
1999 1st h
16 816
18 919
- 2 103
2 926
3 990
-1 064
559
1 860
-1 301
-102
- 4 567
1995
10 704
15 783
- 5 079
810
825
-16
317
85
232
-142
- 5 005
1996
10 826
17 580
- 6 754
939
1 123
-183
472
79
393
-98
- 6 643
1997
10 555
21 181
-10 626
1 003
1 263
-260
452
148
304
-102
-10 685 -10 542
China (excL Hong Kong)
1998
11 816
22 308
-10 493
1 090
1 471
-382
617
163
454
-121
1998 1st h
5479
10712
-5233
505
706
-201
312
69
244
-61
-5251
1998 2nd h
6 337
11 596
- 5 260
585
765
-181
305
94
210
-60
- 5 291
1999 1st h
6 380
10 917
- 4 538
550
728
-178
313
76
237
-29
- 4 508
1995
18 412
36 087
-17 675
4 303
2 484
1 819
2 308
3 461
-1 153
-161
-17 171
1996
20 719
34 254
-13 535
4 167
2 946
1 220
2 144
3 536
-1 392
-95
-13 802
1997
20 160
37 612
-17 452
4 250
2 929
1 321
2 501
4 003
-1 502
-65
-17 699
1998
17 918
40 037
-22 119
4 655
3 512
1 143
2 285
4 203
-1 918
-193
-23 086
1998 1st h
8 976
20 708
-11 732
2 155
1 747
408
1 240
2 195
-955
-44
-12 322
1998 2rid h
8 942
19 329
- 1 0 387
2 500
1 765
735
1 045
2 008
-963
-149
- 1 0 764
1999 1st h
9 587
19 652
-10 065
2 067
1 600
467
913
1 999
-1 087
-66
-10 769
Japan
Special trade according to official trade statistics, incl. supplements to goods trade, exci. freight and insurance costs. ~ 2 Incl. freight end insurance costs on imports. 3 Indonesia, Malaysia, Philippines, South Korea,Thailand, S~gapora, Teiwan, Brunei, Hong Kong. Sources: Federal Statistical Office; German Bundesbank.
from the tourism account with the south-east Asian NICs. What is striking is that Germany continues to earn a substantial surplus in services trade with Japan, although one that is declining in size. More specifically, Germany earns a surplus mainly in tourism and transport; this trend needs to be seen in the context of the substantial volume of goods imported from Japan.
12
Germany's balance of earned and property income with East Asia was also in deficit. Since the onset of the Asian crisis, this deficit has risen markedly, amounting to around DM 2.3 billion in 1998. In the first half of 1999 alone, it reached, at DM 2.2 billion, almost the same level as in 1998 as a whole. The determining factors here are the substantial capital movements in the wake of the
Figure 2
Figure 3
Exchange-rate 1 Fluctuations of
Selected Currencies in East Asia
Germany's Goods Trade 1 with East Asia 28
D M billion )
:i I
175
1995 = 100
South Korea
Imports (cif) t""
.~' . . . . . . . . . .
24 . . . . . . . . . . . . . . . . . . . .
150
125
' ' I ' ' ' I ' '' 1993 1994 1995
I '' 'l 1996
.
.
.
.
.
"~
75
'
10 ..........
N I C s 2,~,*.t'"%%
Asian
..'- .............
China and Hong Kong , ,,i 1993
, , ,i,., 1994 1995
i,,,i 1996
,~,1, 1997
,,i, 1998
.
.
.
.
.
.
~"'/~\
il
.
'
' ' 1996
I
'
' 1997
~
'
' 1998
l
' 99
more, however. 99
Investment goods the most importantexport segment
Imports I by Country and Country-Group in East Asia D M billion :i i: i
i:);ili:
:iiiiii
.
currency and financial crises. These fluctuations were most pronounced in dealings with the NICs, where lending was cut back dramatically in 1998. In the first half of 1999 net German investment in the NICs increased once
Japan
ii~:
.
1 National currency against the D-Mark. Sources: IMF; OlW calculations.
-'. . . . . . .
6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14
.
D M billion
South-east
i i: 84
.
~~'/..~/Malaysia
I 1995
;i~;~:
.
.. China...'....
Exports 1 by Country and Country-Group in East Asia
2
.
' ' ' I ' ' ' I ' 1997 1998 99 100
14
f\\/\
Thailand
16
12
I\ 7,~ . . . . . . . .
...................
South-east
Asian
,
~
NICs 2
J
10
~
.
.
Japan
"
y2China and Hong Kong ::: " - ' " : ' : : : : "-"-" , ,,i
, , , i , , , i , , . i , ~ , 1 ,
1993
1994
1995
1996
1997
,,i
,
1998
99
"!!)i ~ii~i; ~,~
1 Special trade, seasonally adjusted using the Berlin Procedure (BY4). - - 2 Indonesia, Thailand, South Korea, Malaysia, Philippines, Taiwan, Singapore, Sources: Federal Statistical Office; DIW calculations.
German exports to the south-east Asian NICs and to China consist primarily of investment goods. Mechanical and electrical engineering are the two most important export industries. In trade with Japan, on the other hand, automobiles top the list of export goods, accounting for around one-third. Sales to Japan accounted for 60% of total German exports of automobiles to East Asia in 1998, with a total value of DM 10 billion. In the case of exports of investment goods, here defined as exports of mechanical and electrical engineering products, with a total value in 1998 of around DM 30 billion, the proportion sold in Japan, at 14%; was relatively small. Around 7% of total German exports in 1998 were sold to East Asia; in the case of investment goods the figure was around 12%. The concentration of German export goods on just four industries was particularly
13
Table 2
Structure of German Foreign Trade in %
ng.@ng; |~; ~;g{{)~{~ ~ ( :
~!~ :,,i : :ii:: ~ : ~ . ; !
.... ' . . . . . . .
~-;~muntr!es;
.........
~-;.: :-~:~iI
........:~
Exports Foodstuffs
2.1
1.9
1.8
2.2
1.9
2.1
2.9
4.6
Raw materials
0.5
0.5
0.5
0.6
0.6
0.8
0.2
0.7
Semi-finished products
3+4
3.3
3.1
2.9
3.1
3. I
2.5
4.4
Intermediate products
12.2
11.7
13.0
12.4
12.7
13.1
11.0
13.8
Finished goods2 Machines Electrical engineering products Automobiles Pharmac. and cosmetic products Precision mechanics and optical products Iron goods Aircraft EDP/office machinery Plastic goods Watercraft Knitted goods/clothing Clocks Precious metal goods Children's toys
81.5 25.5 15.4 20.0 4.0
82.3 26.2 16.7 19.4 3.8
81.1 24.9 19.5 16.4 3.8
83.5 23.9 20.3 15.1 3.7
81.2 27.5 25.7 6.6 2.3
88.2 29.1 20.3 11.2 1.2
82.7 12.7 11.2 33.4 8.6
72.5 14.5 12.1 19.1 3.4
2.8 I. 7 0.4 1.3 0.8 1.1 0.5 0.4 O.1 0.2
2.9 1.7 0.5 1.0 0.9 0.4 0.5 0.3 0.2 0.1
3.2 2.1 0.6 0.9 0.8 0.6 0.5 0.3 0.1 0.1
3.4 1.9 1.6 1.3 1.1 0.7 0.5 0.2 0.1 0.1
3.0 2.2 1.5 1.7 1.5 1.2 0.3 0.1 O.1 0.0
2.5 2.0 1.8 1.4 0.6 0.6 0.5 0.6 0.2 0.1
4.8 1.2 1.5 1.2 0.7 0.0 1.0 0.2 0.2 0.2
2.3 2.8 2.9 2.4 1.7 0.3 1.4 0.1 0.1 0.2
100.0 71.8
100,0 76,9
100.0 79.9
100.0 67.4
100.0 30.6
100.0 18.5
100.0 18.3
t00.0 950.1
2.7
2.8
2.7
2.8
5.1
3.6
0.1
8.9
Raw materials
1.1
1.2
1.0
0.9
1.5
1.0
0.3
3.9
Semi-finished products
2.1
2.1
2.3
2.2
2.9
3.1
1.0
6.2
Intermediate products
4.4
4.4
4.5
4.6
3.7
4.2
5.6
11.4
88.8 28.3 14.3 10.4 8.0 4.7
88.7 26.8 14.4 10.7 8.3 4.5
88.9 25.7 16.0 10.7 8.3 4.3
88.6 25.8 16.6 10.6 7.4 4.9
85.7 28.7 24.6 3.2 7.1 2.4
87.3 20.1 7.2 0.1 18.9 1.9
92.4 26.7 15.1 24.6 0.2 9.2
59.3 11.2 5.0 10.9 4.8 6.0
4.7 2.2 2.0 1.7 1.1 0.8 0.4 0.5 0.4 0.0
5.0 2.3 2.1 1.7 1.1 0.8 0.4 0.5 0.4 0.0
4.8 2.4 2.1 1.8 1.1 0.8 0.4 0.4 0.4 0.1
4.7 2.5 2.1 1.7 1.0 0.8 0.6 0.5 0.4 0.1
2.5 1.9 2.5 0.6 0.2 0.3 0.8 0.9 0.7 0.2
4.3 4.8 3.9 5.1 1.4 2.5 0.6 0.2 0.5 0.0
7.2 1.4 0.4 0.6 1.5 0.2 0.3 0.4 0.0 0.0
1.9 1.4 2.3 0.4 2.5 0.2 3.6 0.1 0.1 0.1
100.0 87.7
100.0 88.5
100.0 99.6
100.0 106.9
100.0 39.3
100.0 26.9
100.0 40.7
100.0 814.0
Total Total in DM billions
Imports ! Foodstuffs
Finished goods Electrical engineering products EDP/office machinery Automobiles Knitted goods/clothing Machines Precision mechanics and optical products Plastic goods Iron goods Children's toys Pharmac. and cosmetic products Clocks/watches Aircraft Bicycles Precious metal goods Watercraft Total Total in DM billions
1 Indonesia,Thailand, South Korea, Malaysia,Philippkles, Taiwan, Singapore,Vietnam.~ 2 Sub-~oup$ ranked accocdingto the proportion of exports of all the selected countriesin EastAsia in 1998. Source: FederalStatisticalOffice.
14
Table 3
Export SharesI of Selected East Asian Countries2
Singapore
166.6
162.2
Hong Kong
143.0
130.1
Malaysia
76.9
94.9
Philippines
27.5
49.1
Thailand
37.1
47.1
Taiwan
37.7
42.9
South Korea
28.2
37.3
Indonesia
26.7
29.5
China
16.8
22.6
Japan
10.3
11.4
Memo item: Germany
24.5
27.8
9.9
11.6
USA
1 Exportsof goods and servicesas a % of GDP (nominal). -- 2 Ranked according to export share in 1997. Sources: IMF; Federal StatisticalOffice; DIW calculations.
pronounced in trade with East Asia: investment goods, mechanical and electrical engineering, automobiles and chemical products accounted for around three quarters in 1998, compared with just under two-thirds of German exports as a whole (cf. table 2). Germany's export industries were affected to differing extents by the drop in demand from countries in East Asia in 1998 in the wake of the crisis. The decline in exports was above average in mechanical engineering and automobiles; electrical engineering products, on the other hand, held up relatively well. This product group increased its share of German exports to East Asia from 15% in 1995 to 20% in 1998.
point in this product group as a share of total German imports between 1997 and 1998. Knitted goods were imported primarily from China; here the strength of the renminbi, which is de facto pegged to the US-dollar, probably did most to reduce China's competitiveness. The Asian NICs, on the other hand, were able to expand their exports of textiles and clothing significantly. Significant shifts in export structures were observed, however, in trade with Japan; to some extent this reflects exchange-rate effects. Imports of automobiles by Japan fell to a considerably greater extent than was the case with other product groups.
Outlook to the second half of 1999 The East Asian countries hit by crisis in 1997 and 1998 have successfully managed to stabilise their economies within a short space of time, largely by pursuing expansionary fiscal policies. It remains to be see~awhether this means that the basis for a sustained upturn has already been created. A number of important factors are causing uncertainty on this question: the banking crisis has not yet been overcome and most firms have yet to come to terms with their liquidity problems. Given their heavy export dependence, a strengthening of economic activity in the East Asian countries is conditional on a higher foreign demand (cf. table 3). Apart from the traditionally close trading relations of the NICs with each other, the most important trading partner, alongside Japan, is the USA; China and the EU follow at a considerable distance (cf. table 4).
Table 4
Regional Distribution of Exports
by East Asian Countries, 1997
Rising imports of electrical engineering
in %
products and data-processing appliances Increasingly, imports from the south-east Asian NICs are concentrated on two product groups: electrical engineering products and data-processing appliances. Unlike the case with exports, the imported electrical products consist mostly of consumer goods and electronic components; in 1998 these goods accounted for 53% of total imports from East Asia. There was little change in the relative importance of the various product groups in 1998, in the wake of the economic crisis. Knitted goods and clothing, also an important product group, was the only one not to record rising imports, leading to a fall of around one percentage
World
100.0
100.0
100.0
Japan
15.4
11.7
-
NICs
22.61
9.8
22.7
USA
17.7
19.9
28.1
3.3
3.7
4.3
Germany EU
13.9
13.9
15.6
Other countries
27.1
41.1
29.3
1 Trade between the East Asian countries (indonesia, Thailand, South Korea. Malaysia, Philippines, Taiwan, Singapore, Vietnam). Source: IME
15
Table 5
GDP and Consumer Prices in East Asia, 1997 to 1999
Indonesia
5.0
4.9
-13.2
1.0
9.0
57.6
18.0
Thailand
4.5
-1.8
-10.0
3.0
5.6
8.1
2.0
South Korea
7.5
5.0
-5.8
6.5
4.4
7,5
2.0
Malaysia
5.1
7.8
-6.3
2.0
2.7
5.2
3.5
Philippines
2.2
5.2
-0.5
2.0
5.0
9.0
6.0
12.5
6.8
4.8
5.0
0.9
1.7
0.0
Singapore
7.8
8.9
0.3
3.5
2.0
-0.3
0.5
Vietnam
0.9
8.0
5.8
4.3
3.4
9.0
8.3
17.6
8.8
7.8
7.0
2.8
-0.8
-1.5
9.8
5.0
-5.1
0.5
5.7
2.7
-2.5
Japan
27.1
1.4
-2.8
1.0
1.8
0.6
-0.2
Total
100
5.1
-1.1
3.3
3.1
4.8
1.0
EU (14)
2.6
2.8
1.7
2.0
1.9
1.6
Germany
1.8
2.3
1.3
1.8
1.0
0.6
Taiwan
China Hong Kong
Memo item:
1 Based on shares of German exportsto Asia in 1998. Sources: National statistical officesof the countriesconcerned; 1999 DIW estimates.
Growth impulses by way of rising exports have been achieved in recent months particularly by those crisishit countries for which the US and Europe account for more than one-third of their overseas sales markets. Positive economic growth rates are expected for the East Asian countries as early as this year (cf. table 5). This will benefit German exporters, although to a lesser extent than those in the USA and Japan. German exports consist largely of investment goods. Given that productive capacity in East Asia is still under-utilised,2 little investment is being undertaken to expand capacity. Currently most investment goods are being used to replace existing plant and for infrastructural improvements. Given the favourable economic trends during the summer months in the NICs and Japan, the process of economic expansion can be expected to continue. This would enable Germany to expand its exports to East 2 Cf.the OECIYsanalysisof the impactof the Asiancrisison industry:. Table 3 'Summaryof majorstructuralweaknesses',Asia and the Glo. bal Cds/s,Paris 1999,p. 29.
16
Asia in 1999 by around 6% compared with the previous year. This rate of growth on annual average figures understates the pace of the recovery, as the base effect resulting from the sharp decline during the course of 1998 amounted to more than 8%. At the end of 1999, exports are likely to be up by as much as almost 30% on the end of 1998. In the second quarter German imports from East Asia rose at a similar pace to exports; the growth of imports was particularly strong in the case of China. Imports from Japan, on the other hand, declined slightly throughout the first half of the year, partly due to the higher overseas prices of Japanese products resulting from currency appreciation. As economic growth in Germany picks up, import growth is expected to remain brisk, especially given the specialisation of East Asian countries on electrical and electronic goods. As a result, Germany's current account deficit in trade with East Asia is expected to "~,iden further in the second half of 1999. Herbert Lahmann and Andrea Rieck
