Emerging Markets exports raise questions over global demand

Several factors help explain why the dollar value of exports from emerging markets fell sharply in March, including lower commodity prices, the strength of the US dollar and distortions in China's trade data. But the incomplete data so far available for April raise concerns that weakness in demand may be a factor too. 

Capital Economics' measure of emerging market exports plunged by 13.5% y/y in March (in US dollar terms), compared with a 1.7% y/y drop in February. On a three-month rolling basis, which smoothes out volatility in the data, shipments fell by 8.0% y/y after a 4.4% y/y decline the month before. 
At first sight, the March export figures look alarming. But it's worth noting that growth in export volumes has held up well recently, which suggests that much of the weakness in EM export values can be explained by price effects. 

Indeed, lower commodity prices are partially to blame for the poor performance in EM exports. The recent softness has been concentrated in major commodity-producing economies. A similar picture is painted by the regional export data. The Middle East and Africa, Latin America as well as Emerging Europe (which is dominated by Russia) have fared the worst in terms of export performance. Shipments from Emerging Asia, which are less reliant on oil and other commodities, have been relatively resilient. 

The fall in EM exports has also been exacerbated by the strength of the US dollar, which has pushed down the US dollar value of exports priced in other currencies. This can largely explain the weakness in exports in most of Central and Eastern Europe, where exports tend to be denominated in euros. 
Aside from price effects, distortions in China's trade data also contributed to the decline in EM exports in March. Chinese exports were disrupted by seasonal effects caused by an unusually late Lunar New Year and dropped 15.0% y/y in March after a 48.3% y/y surge in February. 

These three explanations account for most of the recent export weakness, some doubts remain, according to Capital Economics. The early signs suggest that exports from most places were even weaker in April than in Q1. 

China's exports were well below their level a year before, although seasonal effects related to timing of Lunar New Year should have faded by April. Exports from the rest of Emerging Asia were weak too, although shipments from these economies should be less affected by lower commodity prices and US dollar effects. This raises concerns that global demand was faltering early in Q2.