While there is much discussion about the timing and pace of the monetary normalisation in the US, there has been less focus on potentially positive turning points in the world economy. After a long period of disappointments, a nascent recovery in the US economy could allow the US to be the global locomotive to drive a broader global rebound. This is important because if global demand is improving, Asian economies are likely to be more resilient to developments such as higher US interest rates. Indeed, if the world economy picks up steam well ahead of expectations, it could also mean that the Fed might be hiking rates faster than expected.

Current indicators show no convincing rebound in world trade…
Since early 2012, world import volumes have barely grown to the detriment of Asian economic growth, which is heavily dependent on exports to advanced economies and China. The latest World Trade Outlook Indicator was at 99, pointing to slightly below trend, and signalling sluggish trade growth in the third quarter of this year. World trade volumes slipped 1% in July over the same period last year, disappointing hopes for a turnaround created by two consecutive months of growth prior to July. The question is, what might forward-looking indicators be telling us about world trade?

…but the lead indicators of world trade are bouncing back
A recent study by the World Trade Organization identified key drivers of world trade. What is encouraging is that the latest data shows some of these indicators are beginning to turn up. It is still early days and the trend is not convincing yet but if it persists, an upturn in global demand for Asian exports could provide an upward lift to Asian economic growth.

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