Business export opportunities Q1 2022 update: temporary inflation as disruptions ease

“Bottlenecks and supply chain disruptions caused a slight contraction in trade in Q3 of 2021 and are likely still to be a key factor in import-export business opportunities until next year,” says Françoise Huang, our Senior Economist for Asia Pacific and Trade.

“Production shortfalls are behind 75% of this trade contraction, with the rest explained by logistics bottlenecks,” she continues, pointing to the release of pent-up consumer demand, renewed Covid-19 outbreaks, and China’s zero-Covid policy which has led to rolling lockdowns across the country. “But we should see some easing of these tensions in the second half of 2022 and more normal trade flows by 2023.”

We predict an important pace of global trade growth, which should create import-export business opportunities. In volume, we forecast a respectable +5.4% in 2022 after an exceptionally strong performance of +8.3% in 2021. In terms of value, we forecast +18.8% in 2021 and +7.2% in 2022.

The gap between the volume and the value numbers in 2021 (8.3% and 18.8%, respectively) is an indicator of inflation. It is largely due to supply chain disruptions which are making it difficult to satisfy the current increase in consumer demand and to fully take advantage of export opportunities.

“This inflationary spike in traded goods should have peaked in 2021,” Françoise points out. “Our trade outlook shows some relatively elevated price effects continuing in 2022, with normalisation in 2023. For 2023, our forecast for global trade growth is +4% in volume terms and +5.8% in value terms”.

“At the moment we continue to see that major drivers in the increase of prices are temporary. They are a legacy of Covid-19, and are not structural,” Françoise explains. Inflation in the US is forecast at +4.6% in 2021, +4.4% in 2022, and +1.9% in 2023. In the Eurozone, it’s +2.6% in 2021, +2.5% in 2022, and +1.7% in 2023.

“You have basically an imbalance between supply and demand because consumer demand rebounded sharply after the full lockdowns were eased,” she continues, describing the environment for export opportunities. “But production capacities were below normal, and the temporary shutdowns of maritime shipping in some places created additional imbalance in meeting demand, which we expect will start to normalise towards the end of 2022.”

Our Global Trade Report  cites industry data showing as an example that it now takes three times longer than normal to clear cargo vessels at Los Angeles and Long Beach in California, bringing the waiting time to 7-12 days. This compares with up to 6 days in Rotterdam, and 1-3 days at large Chinese ports.

All regions of the world are not benefiting equally from this trade environment driven by strong consumer demand.

“I think the export business opportunities in the coming year remain in advanced economies – such as in the US and in Europe,” says Francoise.

In terms of overall export gains, Asia-Pacific should continue to be the main winner in the next few years, with over $3T USD additional export opportunities in 2021-2023. “I think China would be the largest beneficiary just because of the size of the trade between the US and China,” Françoise opines.

Our Global Trade Report suggests that the US will register record-high trade deficits (around $1.3T USD in 2022-2023), mirrored by a record-high trade surplus in China ($760B USD on average).

However, export opportunities to China are a mixed bag in the coming year. “We see a bit of a sharper 
economic slowdown in China  than we had expected,” Françoise says, “largely because of strong regulation in 2021 and problems in the real estate sector.”

Europe remains more vulnerable to continued supply-chains and bottlenecks than the US, because  the continent relies more heavily on intermediate inputs from abroad, due to a lack of CapEx in production and shipping capacities,” says Françoise.

Without production capacity increases and investments in port infrastructure, the normalisation of supply bottlenecks in Europe could be delayed beyond 2022 as demand remains above potential. However, the need for inputs presents export opportunities to the Eurozone.

Check out our Trade Match tool for more detailed information by sector and country to identify import-export business opportunities.

“Our forecast is that automotive   sector should be among the main export winners… but it will take until 2023,” Françoise says. Automotive manufacturers suffered from the Covid-related shortage of semi-conductors. They will benefit from a catch-up as shortages and bottlenecks ease, increasing export opportunities in this sector, especially as consumers have the money in their pockets to go shopping for cars.

“The consumer savings that were accumulated during the Covid-19 lockdowns are not completely depleted,” says Françoise, “and export opportunities are rising because we still have some government support, which in many countries has been more focused on protecting the demand side of the economy.”

Demand for consumer electronics is not expected to present the same level of export opportunities in 2022 as in 2021.

“All the electronic goods – whether smartphones or computers or household white goods – that were bought during the crisis when people could not go outside, have a replacement cycle of several years,” Françoise reminds us. “So even if we go into another full lockdown that forces people to stay home and find ways to entertain themselves at home, we don’t expect this to mean that we will see another huge increase in demand for such electronic goods.”

The real-estate sector in China had presented export opportunities to China until 2021, when the policy focus shifted and defaulting real estate developers concentrated global worries on the Chinese economy. “That could be bad in the coming year for emerging countries that export commodities such as metals and goods that are used in real-estate construction,” says Françoise. But still, government efforts to support the sector and increase infrastructure investment could keep demand afloat for construction materials.

“Policy makers in China are reacting to the downward pressure,” Françoise continues. “And we are likely to see an acceleration in infrastructure spending which, if it happens as planned, could create export opportunities in some of these same areas: commodities and metals.”

In terms of consumer goods in China, the fundamentals of the Chinese labour market are approaching pre-Covid levels, but the country’s Zero-Covid policy puts a lid on a full normalization of consumer spending.

Our Global Trade Report suggests the worst of the Covid-related price increases are behind us, and further increases in shipping costs and imported goods are unlikely, driven by three factors that should start to normalise trade from H2 2022:

1. A cooling down of consumer spending on durable goods and the shift towards sustainable consumption behaviours.
2. Less acute input shortages as inventories have returned to or even exceeded pre-crisis levels in most sectors, and as CapEx has increased (mainly in the US).
3. Reduced shipping congestions as capacity increases.

However, despite the past year of supply-chain disruptions, we find no clear trend of reshoring or nearshoring of industrial activities post-pandemic so far. “Reshoring and nearshoring will remain more talk than walk in the short to medium term,” Françoise concludes.

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