NAB’s Chief Economist, Alan Oster provides his thoughts on the Australian and Global economy.
While China remains our biggest trading partner, other emerging Asian nations – including ASEAN, Hong Kong, South Korea and Taiwan – are critical sources of imports and exports for Aussie SMEs. Understanding these regional economies and their distinct differences is critical.
Emerging Asian nations are critical sources of imports and exports for Australia’s SMEs so it’s important to understand these economies and their distinct differences.
The siren song of Asia is attracting Aussie businesses in unprecedented numbers. NAB’s customer base shows one in four of our Australian business customers are active in Asia (importing, exporting or both), and over 40 to 50 percent of our large corporate and institutional customers have operations in or active engagements with Asia. Over 70 percent of our SME customers’ international dealings are focused on Asia, with many of these based on well-established relationships. More than half believe their activity in Asia will grow.
What’s clear is that Australian businesses cannot afford to only think nationally – they need to think regionally when it comes to understanding macro-economic dynamics.
Accounting for 39 percent of our export market and 18.1 percent of imports, China is naturally always top of mind for Australian businesses looking to grow regionally. But other emerging Asian nations are still very important. Their diversity can make it challenging to grasp the dynamics, but it’s important to understand both general Asian trends and how different economies are performing.
We’re forecasting 7.25 percent growth in China in 2014 – only a slight dip on the
7.75 percent posted in 2013. While this remains the standout growth opportunity, we’re anticipating fairly steady growth across the emerging economies of ASEAN, Hong Kong, South Korea and Taiwan. We expect 4.1 percent growth this year and 4.4 percent in 2015.
While there aren’t any real Asian tiger economies getting ready to roar, we expect to see small and steady improvement across the region.
It’s equally important to understand that the region isn’t one big homogenous area – there are different macro-economic drivers that will affect different East Asian economies quite dramatically. In Thailand, for example, political risk is heightened and that can affect how non-indigenous businesses operate. In Indonesia, inflationary pressures and high interest rates have contributed to holding back ASEAN growth.
Nonetheless, we are optimistic about Indonesia in particular, which we expect to stabilise in the medium term. Indonesia is a highly domestic demand-oriented economy, and as such has been relatively protected from global economic cycles. While we see no big structural changes ahead in Indonesia in the short-term, we do foresee some expansion outside the domestic focus over the longer term that could benefit businesses engaged with Indonesia.
The slight jump in growth across the region is currently being driven by Taiwan, Malaysia and South Korea, where export demand has been high. The strongest lifts in exports were seen in Malaysia and South Korea, resulting in faster growth in industrial outputs and imports.
Overall a key opportunity exists for Australia’s agribusinesses to be a clean, green food supply chain across Asia, and we’re seeing heightened demand for Australian beef as economies across Asia increase their protein demand. While China is a key protein consumer given its rapid urbanisation, we’re also seeing more demand from other emerging Asian economies for our beef.
Ultimately, it pays to understand regional nuances. While a China strategy is important for many businesses, don’t ignore the opportunities available Asia-wide.
This article was first published in Business View magazine (May 2014). For more articles and interactivity, download the iPad edition of Business View for free via our new app NAB Think.
More from NAB
© National Australia Bank Limited. ABN 12 004 044 937 AFSL and Australian Credit Licence 230686.