If the trade world hasn’t quite tipped upside-down in the past five years, it’s certainly become a highly volatile place to operate, with a slowdown in established markets, swift – if unsteady – rise of new powerhouses and the forging of strong new trading partnerships between emerging countries.
But the rise of so-called “south-south” trade, which sees the fastest-growing economies supplying each other, supported by fresh trade agreements, needn’t lock out businesses in the stagnating markets of the developed world.
Billions of people are poised to enjoy new levels of disposable income over the next two decades. Their tastes and habits are not yet as firmly set as in other societies. That signals opportunities for businesses to reposition their brands and build entirely new markets.
According to The HSBC Global Connections Trade Forecast report, this will be a great outcome not just for businesses facing sluggish economic growth in developed economies, but for the global economy itself.
Developed economies and emerging markets could switch roles. Emerging markets could become importers to satisfy new middle-class consumers, while exports from developed economies could meet the demand.
The rise of the new middle classes in the emerging countries has been heralded almost ad nauseam, but the sheer numbers behind the cliché remain mind-boggling.
Economists have noted how the biggest changes in spending patterns occur when individuals move from a very low income, classed as spending less than US$10 a day in purchasing parity terms, to a lower-middle income bracket of $10 to $100.
There could be nearly five billion middle-class consumers by 2030 from around 1.8 billion today, according to the Organisation for Economic Co-operation and Development (OECD), the majority of the growth coming from China, India and other Asian nations.
China and India are the clear leaders. By 2030, more than 70 per cent of China’s population could be middle class, consuming nearly $10 trillion in goods and services, Brookings Institute research suggests. India could add as many as a billion middle-class consumers to the world by 2039.
Population trends will magnify the economic and political consequences of this shift in trade and consumption. Europe’s rapidly ageing population will enhance its economic woes, with Italy, Germany and Spain facing particularly gloomy demographics, according to Harvard researchers.
There are worrying trends too for Japan and Korea, but much of Asia will “stay young”. The median age in the Philippines, which was 22 in 2010, will still be only 32 by the middle of the century, UN statistics show. Its rapidly growing population will compound the effect of massive income growth to support a huge rise in consumer spending.
Famously, China’s one-child policy – now modified – may not make it as vulnerable as it seems. The median age today in China is 35 and in 2050 it will have risen to 49. However, any rise in China’s labour productivity could help take up the slack caused by an aging population and keep the country on its wealth trajectory.
What will people do with their new-found disposable income? Clothing and footwear brands are already seeing the benefit. Asia Pacific is Prada’s biggest market; Gucci expects Chinese buyers to become its top consumers in the next five years.
Furnishings and technology are set to be among the other winners of the new consumption patterns. IKEA will open its first outlet in Cairo in 2013 and is planning 25 stores for India. The emerging markets also have a huge appetite for smartphones and tablets. Asia Pacific accounted for 21 per cent of Apple’s sales in 2011 compared with 7 per cent two years earlier.
Spending on tourism, eating out and personal care, all big markets among the middle-classes in developed countries, could rocket too. And there will be a spike in demand for financial services.
At present 40 per cent of India’s population, for instance, has no formal channel for savings, the Reserve Bank of India says. Vast amounts of money are held in cash, under the charpoy. Similarly, an estimated 26 million people will be keen to buy their own homes if mortgage availability improves, according to the country’s housing finance regulator.
Emerging-market giants Brazil, China, India and Russia consume just 24 per cent of the world’s financial services today, measured by global banking assets, but already this will have risen to 35 per cent by 2016, according to Economist Intelligence Unit (EIU) forecasts.
A rise in banking will itself fuel further economic growth through banking’s traditional role of putting savings to work to fund business growth. Wider availability of consumer credit tends to spur purchases of goods and services.
All this future-gazing could be derailed by obstacles, such as food and energy constraints. But if a vision of abundant trade in the future seems too hazy to inspire confidence, there are positive shorter-term signs too.
The HSBC Global Connections Trade Forecast report projects that world trade growth is set to rise to around 5 per cent in 2013. It will continue to pick up in the following years, hitting 6 to 7 per cent a year in 2014-16.
In this period too, the emerging markets dominate. Trade growth in other regions will be slower, but it should be accelerating steadily from the current depressed levels to 2020, when internationalisation will intensify as businesses optimise their global supply chains.
The UK is predicted to see annual export growth of around 6 per cent from 2013 to the end of the decade, a growth rate ahead of France and Germany, and similar to Ireland.
But these modest headline figures hide a dynamic projection for rates of supply to the emerging markets.
Growth in exports to these new markets is likely to be particularly rapid over the next three years as they recover from the current “soft patch” in the global economy, driving an associated rebound in demand for imports.
UK exports to Asia, excluding Japan, are forecast to grow by around 9 to 10 per cent annually until 2020, before moderating to 8 per cent a year in the following decade.
Exporters will also be able to take advantage of more buoyant demand in Eastern Europe. UK exports to Turkey, for example, are expected to grow by around 11 per cent a year between now and 2015.
Established trading partners will also remain important in the next few years. Despite the eurozone woes, an expansion of exports is forecast, especially to a still-buoyant Germany. And by 2030, the United States will overtake Germany as Britain’s top export market.
James Emmett, global head of Trade and Receivables Finance for HSBC, takes heart from the forecasts. “The fact that the pace of export growth from the US and UK to China is expected to accelerate reflects the continued – and growing – appetite for the high-value, high-end range of goods made in Britain and the US, from FMCG [fast-moving consumer goods] to specialist products in sectors such as technology and pharmaceutical,” he says.
Backing Britain’s trade ambitions
Multinationals are already established on the world’s most promising trade routes. Now there’s growing support for smaller businesses to follow in their footsteps.
Export master classes, networking sessions and a food delegation to China were among the elements of the UK’s first “Export Week” this November. But few in business or government are in any doubt: for a sustainable recovery, every week must be export week.
Acutely aware of Britain’s untapped export potential, the Department for Business, Innovation and Skills has set out to help 10,000 more UK firms to take their products overseas. The emphasis is on small and medium-sized enterprises (SMEs), which have most potential to grow.
Among the expert speakers at the 100 regional Export Week events, organised by UK Trade & Investment (UKTI), was a variety of senior figures from HSBC – part of the bank’s commitment to support business and promote an export-led recovery.
This followed a strong start for the HSBC’s International SME Fund, which offers lending to firms with a turnover of up to £25 million, which have ambitions to trade overseas or to expand their export activity.
The appetite for export support was proved when the fund hit its initial £4-billion target in the first nine months of 2012. The total available has now been raised by a further £1 billion.
But as Jacques-Emmanuel-Blanchet, deputy head of commercial banking Europe and head of Commercial Bank UK, points out that the bank’s commitment to supporting international trade is far from new.
“With our roots in Hong Kong and Shanghai, and an unrivalled presence in the fastest-growing markets across the globe, we’re well positioned to support businesses looking to these territories,” he says. “That includes practical help with cultural issues, contacts and market intelligence, besides the full range of trade finance products.”
The HSBC Global Connections Trade Forecast initiative aims to share the fruits of its worldwide research teams with businesses. And selected firms gain insight and opportunities through the bank’s International Exchanges, held in key markets alongside some of the world’s top business minds.
Dubai was the setting for the latest gathering in November. UK-based geological consultancy Badley Ashton has been considering a presence in the Middle East. The firm’s Meriem Bertouche says: “The Exchange has been really helpful to understand the risks and give us confidence in making that step.”
Another firm, Evolution Power Tools, is also taking a fresh look at the Middle East. “I was initially unconvinced that the UAE should be a priority for us,” says managing director Matthew Gavins. “Then I came out here and saw the energy and passion of the guys keen to help us do business – and I was hooked.”
New world order
Trade flows during the remainder of the decade will be driven by the emerging markets, led by Asia and influenced by heavyweights China and India, according to The HSBC Global Connections Trade Forecast report. Export growth to Britain’s biggest markets in Europe and the US will be slower, but is expected to pick up from the depressed levels seen in 2012.
- UK exports to China are expected to grow at least 9 per cent every year though to 2030, raising the Middle Kingdom to Britain’s fifth largest export partner.
- One of the strongest-growing UK export destinations, India is expected to buy 13 per cent more British exports yearly between 2013 and 2015; 11 per cent more over 2016–20; and 9 per cent a year between 2021 and 2030.
- Vietnam is expected to become one of the UK’s fastest-growing export markets with 10 per cent or more growth every year to 2030.
- Brazil is likely to be the fastest-growing destination for UK exports in 2012 at 42 per cent, with strong growth of 9 per cent or more per annum projected through to 2020.
- British exports to Latin America as a whole are expected to grow 9 per cent a year between 2013 and 2015, and then 7 per cent between 2016 and 2020.
Middle East and North Africa
- Countries in the Middle East and North Africa region are expected to buy 9 per cent more British exports yearly between 2013 and 2015, and 7 per cent more over 2016–20.
- Turkey is a rising destination for British exports which are expected to grow 11 per cent a year over 2013-15 and 9 per cent every year between 2016 and 2020.
- The UK’s top export destination today is a slow-growing market with annual British sales rising just 2 per cent in 2011. Even so, Germany is expected to remain one the best-performing export markets for Britain in Europe through to 2030.
- The Emerald Isle is currently the UK’s fourth largest export destination and, even at modest growth levels, could become our third biggest market by 2030.
- British exports are expected to grow at around 6 per cent a year until 2020 and 5 per cent a year in the following decade.
- Our second biggest export destination today, the US could overtake Germany to become the UK’s top export market by 2030. British exports to America are expected to grow 6 per cent in 2012.