John Casey of HSBC -
2011 was, without question, a difficult year. The headlines continued to document the twists and turns in what is one of the most challenging periods in the Western world's economic history. The picture for many countries in Europe remains extremely challenging, and as a result businesses are having to navigate choppy waters. But the first Global Trade Forecast from HSBC provides cause for optimism for the role that trade could play in driving growth in 2012 and beyond.
While trade has inevitably been impacted by the financial crisis, trade remains the backbone of global growth. This is borne out by the findings of the Global Trade Forecast, which we commissioned to help our customers shape their strategy. The Forecast tells us that over the next 15 years, world trade volumes will grow by 73% by 2025 and international trade activity will grow, on average, by just under $1trillion a year between now and 2015.
Perhaps surprising given the current climate, the story is as positive, if not more so, for Europe, and especially its emerging markets. Europe's external trade to 2025 will grow at a rate that is faster than for the world as a whole. Our Forecast predicts that trade volumes for the EU27 will grow by 77%, versus the world average of 73% over the period. Secondly, it anticipates that to achieve this European businesses will increase their trade outside Europe by 4% a year to 2015 - double the growth expected for the rest of the world. In fact, Europe is predicted to perform better than North America, the Middle East and North Africa region in the short term. But what is driving this?
The European story over the next 15 years can be summarised into three key drivers; Europe's role in emerging market growth, the rise of the "global supply chain" and emerging growth corridors. Critically it is Emerging Europe that features throughout.
1. Europe's role in emerging market growth
Emerging markets are building infrastructure at an incredibly fast pace. This is set to continue - and Europe is a fundamental part of that. As renowned producers of high end products in the engineering and construction industries, Europe is visibly and critically involved in exporting goods for major development projects, from railway construction to roads and buildings. Many businesses are already playing their part, but if growth is set to continue, then analysing where broader European products and expertise is required is key.
2. The rise of the "global supply chain"
The second driver is perhaps the most significant part of the European story to 2025. Developed trading nations are adapting how they work to boost their competitive advantage and improve efficiency; this shift is creating a redistribution of supply chains from "local" to "global".
The change is twofold. Firstly, we will see European business powerhouses broaden their reach globally to spread their influence. And secondly we will see new and ambitious players in Emerging Europe take their own place in these chains, forming technical alliances, establishing new manufacturing hubs and becoming niche suppliers critical to the overall supply chain.
For example, Germany will remain a trading powerhouse, fuelled by its high-end innovation and technology sectors in automotives, manufacturing, chemicals and pharmaceuticals. To improve their competitive advantage, German businesses are now using their European trade links, for example with Poland and the Czech Republic, to create strong and integrated European-based supply chains that can be competitive in global markets. Trade between Germany and emerging nations is forecast to grow by over 10% over the next 15 years.
In turn, we will see new and ambitious players in Emerging Europe taking their own place in these supply chains by forming technical alliances, establishing new manufacturing hubs and becoming niche suppliers in their own right. Poland is already in the top 10 emerging growth trade corridors of 28 of the 36 countries studied for our Global Trade Forecast, while the Czech Republic features in 18. This equates to an increasingly powerful and central role in world trade.
In Poland, our economic forecasting model predicts trade volumes will grow by 125% to the end of 2025. Much of the growth will be in the export of motor vehicles and components, agri-business and data processing equipment; in other words high end products supplied to developed and emerging nations. Trade with Korea through imports of its photographic equipment is growing rapidly, which reflects Poland's focus on developing its role as a supply chain hub; it imports the equipment and then exports a new product out to its new trading partners. The country is also widening its trade into the Middle East, with countries like Egypt, the UAE, Qatar (although from very small numbers) and Saudi Arabia featuring strongly as trade partners in the coming years.
In the Czech Republic, our Forecast predicts trade volumes will grow by 100% to the end of 2025. Much of its growth will be in the export of manufactured goods such as cars and computers - sectors that rely heavily on the strong innovation base of the economy and its integration in the global supply chain. However, it's an open economy and trade is very dependent on global demand - or more specifically, the demands of Germany as its major export partner. However, Singapore and other South East Asian markets are also increasing their trade with the Czech Republic. In Singapore's case, it's forming a key part of its electronic equipment supply chain.
Critically, companies need to understand where there is a role for them in the global supply chain. Learning from peers can provide valuable insights. Considering new alliances is also useful; is there a potential partner also looking to forge links with new markets or companies? Where can businesses work in partnership with their bank or suppliers to mitigate the risks that working with a larger and more diverse supply chain can be associated? All of these are important considerations for a forward-thinking business.
3. Emerging growth corridors
It will come as no surprise that Europe's external trade will increase via trade routes opening up with South America and Asia. India, Brazil, Thailand, Vietnam, Indonesia and Singapore are diverse but emerging trade corridors, which will be built on the back of integration with Europe's largest businesses and the trading of predominantly commodities like food products, iron and steel. For European businesses, understanding these emerging trade corridors and the markets driving them is important to help identify new partnerships and opportunities.
Despite the current climate, our Global Trade Forecast highlights that the next 15 years represent an exciting period for businesses in Europe if they take steps to capitalise on how the world is changing. Businesses need to trade their way back to health and companies wishing to take advantage of the opportunities that international markets offer must act now or risk being left behind.
John Casey is HSBC Head of Commercial Banking, Continental Europe
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