US decline splits export winners from losers - analysis

Int’l Relations

Stumbling United States growth may split the euro zone into export winners and losers, with some countries finding new markets in emerging economies, while others struggle to compete with low-cost producers.

Compared with some of the United States’ other major trading partners, euro zone exports are holding up quite well in the face of economic woes in the world’s biggest marketplace. Overall, euro zone exports rose 13% in the year to February, with the strongest growth to emerging market economies Russia, China, Poland and Turkey. Exports to these countries are roughly equivalent to those going to the United Kingdom, the bloc’s largest single trading partner, and analysts say this will help offset the economic downturn in the second-placed United States.

Deutsche Bank economist Thomas Mayer dubs the emerging market economies the “importers of last resort”, although he doubts that they can fully replace the United States at a global level. “Emerging market countries -- and at this time in particular populous commodity exporters like Brazil and Russia – are picking up some of the slack left by slowing US domestic demand,” he said. But at a national level, the outlook is more mixed. While some of the euro zone’s 15 members will benefit by exporting planes, trains and automobiles to emerging markets hungry for high-tech goods, others face direct competition from cheaper producers of clothes, footwear and furniture.

Goldman Sachs economist Dirk Schumacher said southern European countries are likely to feel the pinch if export flows shift away from the United States to countries like Brazil, Russia, India and China (BRICs). “They are competing head-to-head with the BRICs and Germany is not,” he said. A major hurdle for all euro zone exporters is the strong currency, which pushes up the cost of exports. In the last 12 months, the euro has shot up about 15% against the US dollar to reach a peak above $1.60 this week and has risen about 9% on a trade-weighted basis. But even here, exposure to the vagaries of currency markets varies from country to country.

ECB figures show Germany and the Netherlands are weathering the euro’s rise quite well, while Ireland -- which has the largest export exposure to the United States -- has been one of the hardest hit by a loss of price competitiveness.

Data show that overall, euro zone exports to the United States are faring better than those of some other countries. Japanese exports to the US recorded their biggest tumble in more than four years in March and exports from China fell almost 8% in February alone. In the same period, euro zone exports across the Atlantic rose 13.7%, according to unadjusted US trade figures. Italy and France are among those to record a rise in US-bound exports in recent months, helped in marketing campaign for sheep and goats’ milk cheese halloumi, and defying a fall in overall France’s case by planemaker Airbus. French statistics office INSEE estimates that France would suffer less from a slowing in US growth than Germany and Italy, because trade plays a smaller role in its economy. Some niche products are also doing well. Sales of cheese from euro zone newcomer Cyprus rose almost 25% in the 12 months to January, following the launch of a USUS exports. 

But other countries’ exports to the United States have fallen sharply. Luxembourg, for example, saw its US exports fall 20.9% in the year to January and local officials calculate that the country’s large financial services industry, geared to wealthy overseas investors, makes it more vulnerable to a US slowdown than other euro zone nations.

Portuguese exports to the United States fell 26% in the year to February and Spain’s exports dropped 7.4% in January. Even Germany, the region’s biggest exporter to the United States by volume, has felt some impact. It US-bound exports recorded their weakest result in four years in the Q4, although flows have since rebounded. In February, German exports rose 9%, including a 13.5% rise for countries outside the European Union, although a breakdown for the US share is not yet available.

German economists note the country should be more resistant to a US slowdown now than it was at the start of the decade, given the share of exports to the United States has fallen substantially to about 7.5% -- approximately the same as Brazil, China, India and Russia combined. Adolf Rosenstock, an economist at Gebser & Partner Asset Management, said the impact of slower US growth should fall short of the earlier back-of-the-envelope calculations, where one percentage point off US growth cut a third of a point from German growth. However, the fact that financial markets were more closely linked than ever before meant the current slowdown would probably hit Germany harder this time overall. “Now we no longer have to wait until the ships come into Bremerhaven to feel the impact,” Rosenstock said. “You see it in the news and you’re affected straight away. We’ve imported the credit crunch directly via the financial markets.” (Reuters) 

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