Asia may no longer offer multinationals a refuge from economic storms. Export-dependent Asia is succumbing to lacklustre growth in developed markets, sapping a key source of growth for the likes of Caterpillar , DuPont and UPS .
A molasses-like recovery pulled U.S. import growth in the third quarter to 3.8 per cent over the previous year, down from nearly 11 per cent in the 2010 recovery. That, coupled with China’s efforts to cool blistering investment-led growth and inflation, translated into declining industrial activity in the Middle Kingdom. China’s own imports from Asia thus mirror the trend, slowing in November to a 6.5-per-cent annual growth from a peak of 37 per cent in 2010.
The slowdown is sending tremors through smaller Asian exporters that had hoped to use China to wean themselves from dependence on the West. After six months of declining export orders, South Korea’s growth in industrial output slowed to 2.8 per cent in December – down from a 5.8-per-cent increase in November. Confidence among South Korea’s manufacturers is at its lowest since mid-2009.
U.S. and European multinationals are also feeling the impact. UPS blamed slowing Asian exports for weaker international revenue. Caterpillar’s sales growth in Asia in the fourth quarter slowed to 32 per cent from 67 per cent in 2010. The annual growth in DuPont’s Asian sales, which account for just over a quarter of its global revenue, slipped to 7 per cent in 2011, from 26 per cent in 2010.
The slowdown is not a disaster for most big Western companies. Asia is not a huge market and its long-term growth prospects are still strong. But the decline hurts: Asia provided 43 per cent of DuPont’s sales growth in 2010. Last year, it supplied only a fifth.
Luckily for DuPont, sales in North America grew 15 per cent, more than offsetting slower Asian growth. But in comparison to the slowdown in Asia, accelerating growth in the United States looks fantastic. Until that recovery is strong enough to revive import growth, Asia may have to look on with envy.