Positive Results for Major Markets
German exports, which have traditionally driven the country's economic growth, surged by seven percent in June compared to the previous month, representing the fastest such growth in almost three years. Imports were also up by seven percent month on month. As a result, the German economy has now exited the recession, recording 0.3% overall growth between April and June. With France matching this performance, Europe's two largest economies have rebounded from a 12-month period of recession.
Such positive signs have not been exclusive to Europe. After four quarters of negative growth, Japan exited recession in Q2 after its economy grew 0.9%. Hong Kong also recorded growth, of 3.3%, in the same period. In the US, the IMS manufacturing survey rose in May and specifically the new orders index rose above the threshold for growth for the first time since December 2007. This indicates a swing in industrial production levels from steep contraction to flat or even modest expansion.
Both Japan and China have been boosted by rising domestic consumption and government stimulus plans. In China, the government's stimulus plan helped spur growth in Q2 of 7.9% (an increase of 1.8% from the first quarter) and a rise in retail sales in June of 15%. Japan suffered with particularly negative results in Q1 when exports were badly impacted by the economic downturn. Government stimulus measures totalling $260billion, including cash handouts to stimulate spending, are thought to have kick-started the economy. Japanese manufacturers also benefited from recovering demand in China and other markets, with overall exports up 6.3% during the quarter.
However, Asia's export-dependent markets are still suffering from the slump in spending in Europe and North America. Once the stimulus budgets are spent, new sources of growth will be needed. We have seen the year-on-year decline in air freight volumes at Hong Kong International Airport, the world's busiest air cargo hub, ease in July with volumes down just 8.4%, representing the smallest monthly decline since September last year.
Year-to-date volumes are still down 19.6%, however, signalling that there is a long road to recovery still.
Interestingly, the so-called barometer of world trade, the Baltic Dry Index recently plunged 17.2%, representing the worst week for the index since the deep crash of October 2008, as Chinese demand for steel and coal slowed and stalled price negotiations took effect. In addition, the International Energy Agency issued warnings that oil prices above the current levels of $70 per barrel could dampen nascent economic recovery.
There are also signs that some economies are 'arriving late' to this recession. Russia's economy, for example, shrank by a sharper than expected 10.9% in the second quarter of this year, having been hit by a slump in world demand and weaker prices for its oil and commodity exports.