A Quiz For Exporters: How Bad Will 2009 Be?
If you are an exporter, here is a short quiz to determine what kind of a year 2009 is likely to be. Give yourself one point for every statement that applies to you.
- Your business involves exporting cheap consumer goods to Western consumers, who find themselves struggling to pay off their mortgages, let alone US$1,000+ plasma TVs.
- In order to facilitate smooth and easy trans-oceanic shipments with your foreign clients, you are heavily dependent upon letters of credit and other financial instruments, which suddenly are unavailable, or aren’t worth the paper they’re written on (especially if that paper has a Lehman Brothers letterhead).
- You are based in the eurozone or Japan, where you will be further burdened by a strong exchange rate in a world where every country that can pull it off is devaluing.
- You export large capital goods, like cars, which require dealer financing to be driven off the lot.
- You export commodities.
- You export complex mortgage-backed securities or other acronym-infested securitised instruments. (Trick question: it doesn’t matter whether you export toxic waste or sell it domestically; 2009 will be a bad year for you. Guaranteed.)
- Your government is forcing you to keep employees on the assembly line in order to keep the national job creation machine revved up and exports flowing out the door, even if there is no apparent demand for your product, and the marginal revenue generated from additional workers is zero. (Click here to confirm whether this applies to you.)
How did you do?
We could subtract a point here or there, due to some positive factors that have recently emerged: shipping goods is effectively free, several currencies have depreciated and thus become more competitive. But of course, these are not only offset by the potential for an increasingly negative exports picture as we delve further into 2009 (trade wars can never be far from the agenda), but because these factors are merely reflections of how bad it’s gotten for exports over the past couple of months (there is a reason shipping goods is free).
So I assume that most exporters score at least one point in this little quiz. That gets me to the point of this post, which is that 2009 will be a very, very bad year for exports. In fact, with global real GDP growth set to contract by a rather sizeable 0.8% this year, the stage is set for a 6.9% dropoff in global exports (in US$ terms), by my estimates. How bad is that? Well, during the trade boom of the previous four years, global exports averaged 14.3% nominal growth. If I am correct, that will have seriously negative implications for exporting countries, not just in the ‘net exports’ portion of the GDP ledger, but also in fixed investment and private consumption.
However, in the unlikely event that you got a clean sheet in this questionnaire, and you work for a publically-listed company, drop me a line. I’d like at least one stock to be bullish on this year.