PUBLISHED: Emerging Markets Report, Issue 37 - December/January 2010
The emergence of new trade corridors, reflected in the rising trade between Asia and regions such as Africa, the Middle East, and Latin America is a feature of the new geography of trade and trade finance in the post-recessionary period. A recent report by Standard Chartered on new trading flow says that the new geography will involve rising flows of goods, commodities, people, remittances, and portfolio and direct investment flows. The clearest example of this in 2010 will be continued investment by China in Africa. Investors are also watching India for further market opening as that could have a profound impact on trade flows between South Asia and the Middle East and East Africa. Moreover, the infrastructure boom seen before the crisis is likely to return in 2010 with China leading the way, followed by economies across Asia, the Middle East, and Africa. This will lead to a significant upward trend in the demand for commodities which will, in turn, feed back into the debate over the environment and green energy.
THE NEW GEOGRAPHY OF TRADE
The near term character of the post-financial crisis period will see a continuation of the deleterious impact of debt and of deleveraging in the West, particularly in the US, with a concomitant increase in the financial purchasing power in the Asian economies. According to a recent report by Standard Chartered, the impact of the US consumer has fundamentally weakened; resulting in a structural shift in global financial flows, particularly as China is now visibly emerging as a key motor of global growth. “The immediate impact of weak US consumer demand in 2010 will be stubbornly high unemployment, sluggish wage growth, house prices stabilising at levels far off their boom-time peak, and worries about pensions, despite the rally in equity prices,” says the report, entitled 2010–The Year Ahead. A new world order.
The trend is also extended to the leading European economies, which are all nursing large debt burdens. According to the report: “While this can be viewed as part of the necessary rebalancing of the world economy, the recovery from the crisis has not prompted these economies to make rebalancing their number one priority. Rebalancing implies that the West becomes relatively poorer, spending less and saving more, and that high surplus regions such as the Middle East and East Asia do the opposite, spending more and saving less.”
Significantly, suggests the report, the post-crisis new world order will need to adjust to the reality of the inevitable strengthening of the Chinese currency. “The West has little immediate leverage to tell China what to do with its currency. But in the context of rebalancing the Chinese economy, a stronger CNY is in China’s economic best interest......
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