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Business News/ Opinion / In the global export battlefield, there are no winners
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In the global export battlefield, there are no winners

At a time when global growth is sluggish and weakening, a focus on export growth will do little good

Shyamal Banerjee/MintPremium
Shyamal Banerjee/Mint

Among the handful of worries that are starting to creep up around the health of the Indian economy, is the slowdown in export growth.

The last round of export data showed that merchandise exports declined by 14% in April—the fifth consecutive month of decline. A part of this is because of the decline in the value of petroleum exports, which account for roughly a fifth of total exports. But other important segments of exports, such as gems and jewellery and engineering goods, too, have been under pressure.

A host of factors are being blamed. The global slowdown, the relative overvaluation of the Indian currency and infrastructure bottlenecks are among them. Each of these probably has a role to play.

But the bigger picture worth focusing on, as the Reserve Bank of India (RBI) governor Raghuram Rajan has alluded to in many recent speeches, is the global fight for a larger piece of the international demand for goods and services at a time when domestic demand in a number of economies remains weak. It’s the “beggar-thy-neighbour" approach as Rajan and others have aptly called it.

A number of economies—developed and developing—are managing their exchange rates in a way that will maximize export growth to help balance out weak domestic demand. Given that this is a zero sum game, it’s worthwhile to take a look at who is winning and who is losing, although, in the long term, it looks like no one wins.

Export powerhouse Germany continues to see strength in exports, at least so far. Latest data, which is for the month of March, showed that monthly exports grew 12.4% in euro terms. The value of goods exported was the highest on record. Apart from its traditional strength in the export market, Germany would have clearly benefited from the weakness in the euro, which has given it an upper hand in the export market. Since the start of 2014, the euro has weakened a massive 25% against the dollar.

The problem is that two of Germany’s key markets—China and the US—are seeing a slowdown in growth partly because of weaker exports, which will eventually come back and bite Germany.

Where Germany is gaining, the US is losing. After a good run for a few years after the financial crisis, export growth in the US is slowing. In March, export growth was at 0.9%. In February exports had fallen 1.6%, following a near 3% fall in January. The weakness is being blamed on the strength of the US dollar and is widely expected to impact US economic growth, which in turn will impact global growth and the global demand for goods.

It’s a similar story in China. In April, Chinese exports fell unexpectedly by 6.4% in dollar terms, after falling 14.6% in March. Once again the blame is being pinned on weak global demand and a stronger yuan. Slower export growth will only add to the weakness in the Chinese economy, which is already battling a considerable slowdown. Slower growth in China will hit other countries, including Germany and the US, that are reliant on exports to the Asian powerhouse.

Japan has had a decent run in export growth because of the weak yen although some worries are creeping in there as well. In April, Japanese exports grew 8% year-on-year, following a 1.8% growth in March and a 2.4% rise in February. While on a year-on-year basis, exports have continued to expand, sequentially Japanese exports fell between March and April, leading to fears that a slowdown in China and the US will inevitably crimp export growth in Japan.

The trend among Asian emerging economies is not much different. South Korean exports have fallen for the first four months of the year. In Indonesia, exports contracted by 8.5% in April following a 10% decline in March. Taiwan exports also fell in April hit by weaker demand in China and Europe.

That brings us back to the bigger picture. At a time when global growth is sluggish and weakening, a focus on export growth will do little good. Countries can tinker with their currencies to try and grab a slightly larger share of exports, but if in the process aggregate global demand is hurt, everyone loses.

For a country like India, the best policy would be to stay on the sidelines of this battle. The domestic economy has always been our mainstay and the focus at a time like this should be on strengthening domestic demand. Efforts in that direction will yield far more than any attempts to shore up exports.

To be sure, we can’t entirely ignore exports from a balance of payments perspective. If exports weaken further and the import bill starts to climb as commodity prices normalize, the current account deficit will widen and add to discomfort that investors are feeling towards India.

Ira Dugal is assistant managing editor, Mint.

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Published: 28 May 2015, 07:08 PM IST
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