Optimism around increases in future trade growth is permeating the US market as the economy stabilises. With the desire to tap growth opportunities abroad and the growth prospects that the emerging markets represent, the latest HSBC Trade Confidence Index found that 62% of US respondents anticipate higher trade volumes in the next six months – an increase from the 56% of this demographic that were optimistic about trade growth in the second half of 2010.
This optimistic view is consistent with the growth of US exports the country reported in May. According to data from the Department of Commerce, exports grew 4.6% to US$173bn surpassing their pre-recession high. US exports had their largest monthly gain in 17 years. In addition to the general improving outlook on the economy and trade, the HSBC Trade Confidence Index provided some interesting data that suggests the global markets may be evolving in new ways that will re shape the trade corridors of the future.
In fact, world trade growth is a significant indicator of economic health. Consider that world trade growth grew faster than global GDP from 1991 to 2007 until the downturn hit the global markets. World trade growth recovered to 14.5% in 2010 after a downturn in 2009. And, in the US, exports grew 15.4% in 2010 and imports grew 14.8%, while GDP only grew 2.8%1.
The Growing Importance of the Emerging Markets
With the traditional trading markets tapped out as a significant source of new growth, the emerging markets are taking on an increasingly important role in the global economy. Their increasing consumption and improving quality of workforce are creating new opportunities for traditional trading markets and healthy intra-regional trading opportunities among the emerging markets that in turn are propelling global economic stability and future growth. The HSBC Trade Confidence Index results show that emerging markets provide the most promising trade growth opportunities in the near future.
Hence, it is probably not surprising that positive sentiment about trade activity and growth remains highest among the emerging markets with India (140), Saudi Arabia (132), Mexico (125) closely followed by Indonesia (123), Turkey (122), United Arab Emirates (UAE) and Singapore (both at 121). In the developed world, sentiment was positive in most cases with the US, Canada, Germany and Australia registering the highest levels of confidence2.
Growth in the emerging markets, as well as the expanding middle classes in countries such as China, India and Brazil, provides a unique opportunity for developed economies such as the US to export value-added products. In fact, the number of middle class and affluent consumers in China is projected to grow from 150 million to more than 400 million by 20203. Meanwhile, Brazil’s economy grew 7.5% in 2010, its fastest expansion in 25 years4.
For developed markets such as the US, these emerging markets are bright spots that represent new opportunities outside of established trade with other developed markets. In the past four waves of the Trade Confidence Index, the US view of Canada as the most promising region for trade growth has declined in every wave, while China and Latin America have continued to rise (see Figure 2). In fact, Latin America has steadily moved up to 12% as one of the top regions for future trade growth opportunities since the first survey in 2H09.
Evidence of this increased focus on the emerging markets is illustrated by the increase in US exports to China. US/China exports totalled US$69.6bn in 2009, representing a 33% increase from 2000 and outpaced the 29% growth that US exports had to the rest of the world during that time5.
In addition, US exports to Brazil have grown more than 70% in the past decade to total US$26bn in 2009, making it the US’s second-fastest growing export market after China. In the past five years, trade between the US and Brazil has more than doubled, with total US goods and services exports to Brazil in 2010 estimated to be more than US$50bn6.
With Optimism Comes Caution
The global economic outlook has increased significantly to the positive for potential trade volume growth and access to trade finance in the latest HSBC Trade Confidence Index. However, there is also an increase in concern around a number of areas that could impede import and export growth for US companies including:
- Foreign exchange (FX) fluctuations.
- Costs of essential services.
- Rising interest rates.
As long as the cost of commodities such as oil remains high, these concerns will likely continue.
Buyers and suppliers also remain cautious around non-payment and non-performance, with buyers slightly more weary regarding supplier non-performance risk. Seventeen percent of buyers indicate that they expect non-performance to increase over the next six months. The biggest culprits to this potential increase will be increases in cost, contraction in the global economy or deteriorating financial health of suppliers. For their part, suppliers’ seem to be less concerned about buyer non-payment. To manage potential non-payment by buyers, suppliers indicate that they will become increasingly selective about the ‘buyers’ they do business with. Based on the HSBC biannual survey, consideration of these various mitigation strategies jumped 17% from September 2010, while strategies around payment terms such as advanced payments, tightened terms and duration fell a combined 15%.
Trade Finance to Support Growth
The need for, and the access to, trade finance is expected to increase alongside the future growth of trade volumes, with banks playing an important role as the main channel of trade financing. Almost 25% of respondents agree that their need for trade finance will increase, while 30 % expect the access to that trade finance to improve. Banks are noted as the key channel for financing by 40% of respondents, followed closely by self -funding, with payment terms from suppliers a distant third.
Trade Settlement Currencies
For US businesses, the US dollar will continue to be the dominant currency of choice for trade settlement. This is echoed in the global results of the survey as well although the Chinese renminbi (RMB) is expected to become one of the top three trade settlement currencies in 2011 globally.
Overall, the HSBC Trade Confidence Index notes more positive sentiment among US businesses about the prospects global trade offers their businesses. US businesses increasingly recognise the opportunities that are being generated by emerging market trading as global trade continues to be viewed as a catalyst for future global economic advancement. Companies that are able to take advantage of the opportunities that higher growth markets represent – such as the emerging markets – should be able to position themselves well for the future.
1International Trade Administration.
2The results were used to calculate an index range from 0 to 200, with 200 representing the highest confidence level, 0 representing the lowest and 100 being neutral. The HSBC Trade Confidence Index covers a total of 21 markets – including key economies in the Asia-Pacific region, MENA, Latin America, North America and Europe. It is the largest trade confidence survey globally. The current survey comprises six-month views of 6,390 exporters, importers and traders from small and mid-market enterprises on trade volume, buyer and supplier risks, the need for trade finance, access to trade finance and the impact of FX on their businesses. The survey was conducted by research company TNS between February to March 2011.
4Brazilian Geographic and Statistics Institute.
5US China Business Council.
6Department of Commerce.
To learn more about HSBC Global Transaction Banking, please visit the company’sgtnews microsite.
When Mark Cuban declared that "Data is the new gold" he highlighted why information is possibly the most valuable asset a business has. APIs are the unsung heroes that make it possible to extract that value.
Europe’s opening banking regulation is finally here. After months of preparation across the continent, the Revised Payment Services Directive comes into effect on January 13.
The revised Payment Services Directive regulation, regarded as one of the most disruptive in Europe’s financial services sector, will begin to make an impact on January 13, 2018.
The cost of compliance efforts for banks has increased exponentially in recent years. This is especially true for those banks that are active in the global trade finance domain, where the overwhelming expectation is for compliance requirements to become even more complex, strict and challenging over time.