The August issue of EFIC’s newsletter, World Risk Developments, delves into economic problem areas and risks around the world and considers the impact on our biggest export market – Asia – and on Australian exports.
Asia. Australia’s key Asian trading partners now appear to be feeling the effects of softening external demand caused by Europe’s contraction and the United States’ tepid recovery. According to Dougal Crawford, EFIC Senior Economist, non-Japan Asia grew by around 5½% year‑on‑year in the June quarter – this is well below trend and a noticeable slowing from the 7½% pace achieved in 2011.
“Slowing exports are one factor behind the GDP slowdown”, observes Crawford. “But it also reflects slowing domestic demand in many Asian economies caused by tighter policy, weak confidence or falling investment”, says Crawford.
“If Asia’s growth continues to slow, the direct effect on Australian exports could be noticeable as non‑Japan Asia accounts for over 50% of Australia’s exports”.
The news in Asia isn’t all negative. Indonesia’s economy continues to power along, growing 6.4% year‑on‑year in the June quarter, thanks to strong domestic investment and consumption. This strong domestic activity is a real contrast to the domestic softness in countries such as China and India.
However, Indonesia’s strong growth and improving macroeconomic fundamentals have obscured rising external vulnerabilities and the country’s challenging investment climate.
In particular, the country’s widening trade – and current account – deficit means that after years of surpluses, Indonesia is becoming more reliant on foreign capital to maintain external stability.
Recent changes to Indonesia’s trade and investment policies could temper investor enthusiasm and slow foreign direct investment, making it more difficult to maintain external stability. “This could exacerbate the country’s current account deficit and put more pressure on the already weak rupiah”, says Crawford.
Mongolia. The report also notes that a change in government and the slowdown in China are beginning to temper some of the bullishness about Mongolia.
“A possible push by the new government to secure greater benefits for Mongolians from the country’s prodigious resource wealth and slowing commodity demand from China, could tarnish the investment appeal of the resource sector, especially if policy changes are abrupt”, says Benjamin Ford, EFIC Senior Economist.
“This could discourage the development of the next phase of resource projects, particularly those with uncommitted financiers and customers”, concludes Ford.
Latin America. Ford also observes that two of Latin America’s largest economies – Brazil and Argentina – are struggling. In Argentina, progressively tighter foreign exchange restrictions are exacerbating the country’s economic woes. A range of official indicators all point to a decelerating economy.
“Industrial production fell 4.7% year‑on‑year in June, the biggest decline since January 2009. At the same time, inflation remains high – private estimates put it at 24% a year. And despite the imposition of currency and import restrictions, the country continues to record current account deficits”, says Ford.
Meanwhile in Brazil, the world’s six‑largest economy, growth has slowed sharply in recent quarters. While much of this slowdown can be attributed to softness in Brazil’s top trading partners, such as China, it may also reflect inadequacies on the economy’s supply side.
“A combination of infrastructure deficiencies, an expensive and underqualified labour force, and regulatory red tape have raised the costs of doing business and discouraged companies from launching expansion plans”, observes Ford.
In other stories, the report also reviews recent developments in the eurozone, China’s banking sector, PNG politics and investment climate risks faced by miners in various jurisdictions.
About EFIC
Export Finance and Insurance Corporation (EFIC) provides tailored finance solutions to help Australian businesses overcome the financial barriers they face when expanding their export activities.
As the Australian Government’s export credit agency, we help Australian-based businesses to win and finance export, offshore investment and onshore export-related opportunities when their bank is unable to provide all the support they need.
We work directly with businesses and their banks to provide loans, guarantees, bonds and insurance products which can be tailored to meet the needs of both large and small enterprises.
EFIC is uniquely placed to do this: we have over 50 years of export finance and industry expertise, contacts at financial institutions around the globe, the strength of our AAA credit rating and an entrepreneurial business approach to make export and eligible export-related deals happen.
We practise responsible lending and uphold social and environmental best practice in the transactions we support.
About Dougal Crawford, EFIC Senior Economist:
Dougal Crawford’s responsibilities as Senior Economist include country risk assessments and ratings. One of his roles is to provide in-depth market briefings for clients, industry and government on economic and geopolitical issues and the outlook for Australian exports and investment.
Before joining EFIC, Dougal worked as an economist at the Reserve Bank of Australia for almost five years, two years of which he spent analysing economic changes in developing Asia.
Dougal co-writes World Risk Developments, a newsletter which circulates widely in Australia and abroad.
About Benjamin Ford, EFIC Senior Economist:
Benjamin Ford is responsible for country and political risk assessment and economic analysis at EFIC. He also provides in-depth briefings for clients, industry and government on economic and geopolitical issues and the outlook for trade and investment flows.
Before joining EFIC, Benjamin worked for the Australian Securities and Investments Commission (ASIC) and the Commonwealth Treasury, where he focussed on international macroeconomic and financial market issues and contributed to Australia’s participation in multilateral forums such as the G20, the Joint Forum and APEC. He is an Education Fellow of the American Australian Association and a Lowy Institute for International Policy contributor.
Benjamin has travelled extensively throughout Asia and other emerging markets. He has published numerous articles and papers on macroeconomic, financial market and geopolitical issues. He contributes to the monthly World Risk Developments newsletter, which circulates widely in Australia and abroad.
For further information please contact:
Benjamin Ford Dougal Crawford
Senior Economist Senior Economist
Export Finance and Insurance Corporation Export Finance and Insurance Corporation
Phone: +61 2 8273 5497 Phone : +61 2 8273 5498
Email: bford@efic.gov.au Email: dcrawford@efic.gov.au
