Global Trade Confidence High Despite Inflation, Finds HSBC Survey
Exporters and importers around the world remain optimistic about trade prospects in the next six months despite increasing concerns about rising costs, reduced profitability and volatile demand. The HSBC Trade Confidence Index (TCI) held steady at 114 in the first half of 2011 compared to 116 in the second half of 2010.
Rakesh Bhatia, HSBC global head for trade and supply chain, said: “In the face of inflationary issues and continued uncertainty in the global economy, our survey underscores the trade sector’s resilience to the rising prices of raw materials, wages and shipping services, interest rate hikes and a possible pullback of consumer spending.
“The HSBC TCI points to two important trends that have sustained confidence despite headwinds and will underpin the future of global trade; strengthened intra-regional trade and greater connectivity with, and in, the emerging markets. Greater
China, in particular, promises to boost prospects for traders around the world,” added Bhatia.
Globally, trade health is sound with around nine in 10 traders expecting trade volumes (89%, 0), including their need for trade finance (92%, +3) and their access to liquidity (91%, 0) to either increase or hold at current levels in the next six months.
The HSBC TCI covers a total of 21 markets – including key economies in the Asia-Pacific region, Middle East and North Africa (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 foreign exchange (FX) on their businesses.
While the level of confidence was highest among the emerging markets of India (140), Saudi Arabia (132) and Mexico (125), sentiment across traders in the world’s top export markets, namely, China (114), Germany (107) and the US (111), were also solid with the China and US indices strengthening by three points each.
RMB and Greater China
Overall traders indicated the renminbi (RMB) would become one of their top three most used trade settlement currencies in 2011. Notably, the RMB also ranked the third highest for primary currency usage having overtaken the pound sterling for the first time. In order of preference, the US dollar remains the clear leader, followed by the euro, RMB, pound sterling and Japanese yen are the traders’ top five trade settlement currencies. As the global trade sector prepares to increase trade with greater China, the use of the RMB to settle trade in the next six months is gaining momentum being led by traders in greater China (45%, +5), MENA (13%, +10) and southeast Asia (16%).
Bhatia said: “By 2015, it is expected that approximately US$2 trillion, more than half of China’s trade, will be settled in RMB. Our survey revealed that emerging markets are paving the way for the RMB to be accepted as an international trade currency as more traders, particularly in Asia and MENA, are preparing to use RMB to settle trade in the future.”
Developed markets recognise the emerging markets as a driver of growth and plan to expand their relationships with them in the short term. In the US, more than a quarter (27%) of respondents are looking to Greater China for growth while over a 10th (14%) of their counterparts in China see further growth potential with the US in the next six months. At the same time, the outlook for Germany’s trade sector held steady at 107 with 31% and 26% of respondents forecasting central/eastern Europe and greater China, respectively, as the most promising regions to expand trade.
Traders across the globe identified greater China as the most promising region for growth followed by Europe and Latin America. In Asia, traders from Hong Kong (50%), Indonesia (44%), Malaysia (43%) and Australia (30%) see greater China as the most promising region for growth. Twenty-three percent in North America, 11% in Latin America, 24% in MENA and 16% in Europe see the best prospects in
greater China.
Bhatia said: “The survey points to more sustainable and balanced trade dynamics and suggests that new markets such as those in emerging Europe will broaden growth prospects for traders around the world. The role of greater China as the new axis for global trade continues as traders in both the developed and emerging world look to this region for the greatest potential for growth.”
Challenges
Inflation brings new headwinds that are increasingly becoming a concern for traders globally. As traders face a variety of rising costs, nearly half (45%, +10) of respondents in the US, 38% in southeast Asia (+7) and 22% in Australia (+3) cite costs of shipping, logistics and storage as a major barrier to growth.
Rising interest rates continue to trouble traders in greater China (34%, 0) and southeast Asia (30%, +14). Traders in North America (31%, +9) and Latin America (25%, +15) worry about tightened margins, while traders in MENA are most concerned about weak demand (38%, +10) and buyer default risk (37%, +10).
Fluctuating exchange rates continue to be an ongoing barrier to growth for those in greater China (62%, +7), southeast Asia (59%, +15), North America (47%, +4), Latin America (40%, +3) and MENA (33%, +12).