Skyrocketing inflation and energy costs are expected to dampen European spending on retail goods, which will come down hard on Asian production centres. Southeast Asian exports are beginning to be hit by the economic challenges faced by Europe, as concerns grow that possible recessions in the West could also strain Southeast Asia’s economic recovery efforts well into 2023.
Spiking inflation and energy costs, as well as other economic impacts of the Ukraine war, are likely to see European economies struggle over the coming 12 months, with consumers cutting back on spending. This is expected to have a significant impact on Southeast Asian exporters, particularly those in textile manufacturing, the largest export sector for several countries in the region. Dark economic forecasts for 2023 The World Bank has warned that the world is edging towards a global recession next year, possibly leading to a string of financial crises in emerging markets and developing economies, according to a study it published last month.
Fitch Solutions, a financial research company, expects the US to suffer a “mild recession” in late 2023. The International Monetary Fund, or IMF, reckons the eurozone area will see growth of 3.1% in 2022 and just 0.5% 2023, according to its latest outlook published this month. “The decline in exports [from Southeast Asia] will worsen,” said Brian Lee Shun Rong, an economist at Malaysia’s largest financial services group, Maybank. “Global growth will likely cool further, and recessionary risks are climbing. The EU may head into a recession as it continues to face supply and cost of living shocks from the Russia-Ukraine war,” he said.
More precise trade figures from Southeast Asia will likely be released later this year, but across mainland Southeast Asia, preliminary numbers show exports have been declining since July. In 2022, the export of Cambodia’s textile goods, which account for more than half of the country’s overall exports, grew year-on-year by 37% between January and June but slowed to 19.9% in July and just 2.7% in August. Exports in total decreased by 7.5% in September, compared to the same month last year, according to data from the Cambodian General Department of Customs and Excise. Ken Loo, secretary-general of the Garment Manufacturers Association in Cambodia, an industry body, said he thinks Cambodia’s exports to European markets will continue to decline in the fourth quarter of this year and into 2023. Vietnam, whose trade with EU markets soared by 14.8% last year to $63.6 billion (€64.4 billion), saw its exports decline by 14% between August and September, with many factories already suspending operations, according to Vietnam government data that was reported by local media.