Weak Chinese demand last year caused steep industrial production cuts across Asian economies. Slowing final demand seen in Europe and the US too led to an export downturn.
“Despite a faster China reopening, growth in Asia is likely to slow sharply in coming months, as firms work through the excesses, and since China’s initial growth rebound is likely to be more services-driven, which has limited spillovers,” Nomura said in a report.
The Chinese economy, the second biggest in the world, has yet to recover, despite the rapid rebound following the fast rollback of its Covid Zero policy in December. Sectors like property, durable goods, manufacturing and exports continue to see weakness.
However, Nomura has said that a rebound in Asia’s export/industrial cycle is more likely in the second half of the year, despite the optimism around the effects of China’s reopening.
India’s trade linkage with China
According to recent data released by Chinese customs, the trade between India and China touched an all-time high of $135.98 billion in 2022. India’s trade deficit with Beijing crossed the $100 billion mark for the first time despite frosty bilateral relations.
China’s exports to India climbed to $118.5 billion, a year-on-year increase of 21.7%. During 2022, China’s imports from India dwindled to $17.48 billion, a year-on-year decline of 37.%.
S&P Global Ratings in a recent report claimed that China’s relaxation of its zero Covid-19 policy is likely to impact emerging markets (EM) that are exposed to China’s consumption.
Greater mobility in China reduces the risk of port or manufacturing disruptions, which could be positive for EMs with significant manufacturing linkages with China. However, weakening demand in advanced economies, the key buyers of manufactured goods, is likely to prevent those benefits from fully materialising.
Global demand slowdown a worry for India
With global recessionary concerns in mind, India’s trade outlook is likely to remain flat in the coming fiscal. The Economic Survey released last week said that unless global economic conditions pick up, there won’t be many cheers for India’s trade scenario.
The Survey said that though India’s merchandise exports have touched an all-time high of USD 422 billion in 2021-22, the world economy has started facing formidable headwinds and the ripple effect of the global trade slowdown has started reflecting in India’s goods export growth.
Government data showed that India’s exports contracted 12.2% to $34.48 billion in December 2022 due to the global demand slowdown while the trade deficit widened to $23.76 billion during the same period.
As per the World Trade Organisation (WTO), global trade is likely to grow by a measly 1% in 2023.
India’s external sector has been impacted due to volatility in global commodity prices, tightening international financial conditions, heightening financial market volatility, reversal of capital flows, currency depreciation, and looming global growth and trade slowdown.
“The slowdown in Indian exports is inevitable in a slowing global economy, characterised by slowing global trade,” the survey said.