Historically, the two say in the bank’s latest Economist Insights note, Asian exports have proved a good warning signal for the health of the global economy.
“Almost every time that Asian exports have experienced a downturn, the global economy has experienced a downturn as well,” the pair say.
As is evidenced by the graph below, Asian exports have fallen sharply in recent months. But, does this imply that we will see a concomitant fall in global growth, or are there other factors to explain it?
According to McCullum and Moretti there are a few things to consider. The first is the strength of the US dollar, against which both China and Hong Kong peg their currencies. While this may go some way to explaining the fall in exports from China and Hong Kong, it does not however, explain the decline in exports from South Korea and Singapore.
Another possible explanation for some of the weakness could be the vertical integration of trade. But, the pair say, the impact of this integration should make little difference to the growth rate.
Looking at it purely in terms of exports to developed markets, which will be of most interest to those trying to decide exactly when the Fed might raise rates, UBS points out that the weakness in Asian exports is not as severe and, indeed, looks to have turned positive in June.
And, the pair add, given the fluid nature of the current global economy, structural changes are forever breaking and remaking relationships between data points.
“When in doubt, look for corroboration. Other early warning signals are not as pessimistic; for example the purchasing manage indices. And, the US yield curve is not inverted which has been a necessary (if not sufficient) precondition for a recession there,” the pair say.
But, they add: there is often also a temptation to find excuses to ignore bad data. “Perhaps it is the other early warning signals that are broken.”
