Sunday, May 11, 2008

Decoupling?

The US FRED system has monthly data for imports by the US from China. The graph above shows year-on-year growth rates. NBER-defined recessions are superposed as shaded bars. Click on the graph to see it more clearly; here's the original source.

In all the three past recessions, one sees a substantial slowdown of imports by the US from China.

We don't yet know whether NBER will call this episode a recession, but the year-on-year growth of US imports from China has already gone to zero. Further, over this one year, the USD dropped by 10% (as measured by the US major currencies index). So effectively, there was a 10% drop in Chinese exports to the US over the last one year. Ouch! Another critical question is the depth and severity of this recession (in the event that it proves to be one). It could well be worse than the last two recessions.

I wonder what is happening to US imports from India. In China's case, the bulk of US imports from China are merchandise, so customs-based information works. In India's case, while data for merchandise exports to the US is available, this is an incomplete picture because a good chunk of India's exports to the US are services.

1 comment:

  1. You are absolutely right. The service exports data along with their destination is not available. Hence I looked at the balance sheets of some of the leading software service providers to get some idea.

    It clearly suggests that there has indeed been shift from the US markets to the other markets, especially towards Europe. Some companies have reduced their exposure to the U. S. market from more than 80% around 2000 to around 50- 60% in 2006- 07.

    A comprehensive study is required and time constraints prevented me from pursuing it further.

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