The growth of world trade depends more on rising incomes in Asia than on economic growth in Europeand North America, according to a new DHL-commissioned study.
The study “Fuelling Global Trade: How GDP growth and oil prices affect international tradeflows”, conducted by the Economist Intelligence Unit, looked at the impact of economic slowdown ontrade flows in Asia and the West; and the effect of oil prices on the value of trade between thesecountries. Based on a five-year forecast, the report revealed several key findings that are crucialfor the international trade.
According to the EIU study, the link between income and trade is stronger between Asia andthe Western countries than between North America and Europe with a 1% increase in combined incomebetween an Asian country and a Western country delivering a 1.36% increase in trade. In contrast, a1% increased in combined income between two Western countries generates a 1.14% rise in trade.
Another key finding shows that increasing oil prices also have a great impact on the worldtrade with a 1% increase in oil price leading to a 0.24% reduction in trade under the assumptionthat all other drivers, such as income levels in two countries, remain constant.
Meanwhile, high oil prices have the most dramatic effect on Southeast Asia, where tradedecreases the most. The impact on oil prices is much greater when an ASEAN country trades with anation in the EU or NAFTA. In this case, a 1% increase in the price of oil reduces the trade valueby 0.3%.
High oil prices impact more on Asia to the types of goods being traded. In West to West tradethere is a higher proportion of ‘high-value’ goods such as computers, aircraft and media devices,while Asia trade includes more ‘low-value’ goods such as coal and gas, coconuts, palm oils andtextiles and shoes. Since transport costs make up a larger share of the final cost of low-valuegoods than they do for high-value goods, rising oil prices have a larger impact on trade growth forAsia.
“The study reveals the slowing Asian growth story and the need to rebalance their economies.The challenge that Asian trade faces today is to hasten the migration to high value goods and focuson managing their growing dependence on oil,” Deutsche Post World Net CEO Frank Appel explained. “The impact of rising oil prices will add risks and negatively impact Asian international trade. Thestudy also reveals that for 2009 and beyond, international trade will depend more on rising Asianincomes than the West.”
In all, the EIU study on economic trends in world trade looked at trade flows between 39countries, and a total of 383 bilateral trading relationships. These included NAFTA members (US,Canada and Mexico), 25 European Union countries, the six largest ASEAN economies along with Japan,South Korea, India, China and Hong Kong.
