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This article was first published in the May 2016 China edition of Accounting and Business magazine.

The highly export-dependent economies of East and South-East Asia have endured more than a year of declining export demand, contributing to a loss of economic momentum. The International Monetary Fund has warned that the dangers to the world economy have grown since it downgraded its 2016 growth forecasts in January. 

Still, there are signs that the global economy is stirring. First, there is accumulating evidence that the slowdown in global manufacturing is ending: 

  • In the US, the ISM manufacturing index rebounded to 51.8 in March, expanding for the first time since August 2015, and the surge in the new orders index suggested that this rebound would continue. Surveys by the Federal Reserve Bank also suggest manufacturers are more optimistic.
  • China’s manufacturing index also bounced back in March, after eight months of decline. The pipeline of new orders from both domestic and export sources also suggests that the recovery is not a one-off. The recovery in manufacturing could mean the government’s stimulus measures are helping to contain the headwinds. 
  • The rebound in the two large economies could be spilling over into other economies. Taiwan’s manufacturing sector was expanding in March after eight months of decline and the wane in Korean manufacturing appears to be close to an end as well. Even India’s manufacturing sector enjoyed a bounce and is at its highest level since July last year. 

Second, underlying demand conditions for manufacturing could be improving. One of the main concerns about the recovery in developed economies has been how the limited spillover into demand for Asian exports has lagged global output expansion. One reason is related to the missing ingredient in the US, European and Japanese recoveries – capital spending. Corporate America is reported to be sitting on US$1.8 trillion of cash instead of spending the money on new capacity. Similarly, in Japan, companies have hoarded US$3 trillion. 

There are incipient signs that these huge cash holdings might soon be unlocked. For example, the Federal Reserve’s Tech Pulse Index surged by 10.1% year-on-year in February, its fastest growth since August 2010 and its highest level since May 2008 – suggesting a growing chance that technology spending will soon rebound. With Asian manufactured exports heavily skewed towards electronic components, such a rebound would be substantially positive.  

Finally, the positive impact of lower oil prices should also boost global manufacturing. Low oil prices have taken a while to produce their expected benefits. This is because the losers from lower oil revenues – oil exporting countries and oil producing companies – slashed their spending and hiring swiftly as oil prices fell. But the winners from oil prices – consumers and energy-intensive businesses – waited to see if the fall was permanent before stepping up spending. That meant the net impact of low oil prices was initially negative. Now we are at an inflexion point, where the winners are beginning to step up spending while the worst effects of cuts are dissipating. Note, for example, how airlines have been reporting big expansion plans. 

In other words, there is a growing chance that global demand will improve from here onwards, providing an uplift to Asian exporting nations as diverse as China, Korea, Malaysia, Thailand and Singapore. Barring an unexpected crisis in the Chinese economy, the worst may well be behind Asian economies.

Manu Bhaskaran is CEO of Centennial Asia Advisors in Singapore