Indian Exporters, Watchout! More Clouds Gathering On The EU Front

How will Indian exporters fare on the 15-nation European Union (EU) market this year, given that the EU economy, the world?s second largest, is doing very badly.

Growth in the 15-nation EU is forecast at just 1.3 per cent this year, while the forecast for the 12 EU countries that have adopted the euro is a meagre one per cent. This is marginally better than the EU?s economic performance in 2002, when the 15-nation EU recorded a growth rate of 1.1 per cent, and the 12-nation eurozone one of 0.9 per cent. These low growth rates amount to bad news for the Indian exporters, given that the EU accounts for around one-fifth of the country?s total exports.

Some idea of how they might do on the EU market this year can be had from their performance last year. While the latest trade statistics published by the EU are limited to the first 10 months of 2002, and not the full year, they are the most detailed available at present.

India?s total exports to the EU came to 11.1 billion euro* during the first 10 months of last year. This was an increase of 1.4 per cent over the corresponding period for 2001, when Indian exports grew by 4.4 per cent. What is more, India was one of the few Asian countries to record an increase in 2002. The exports of Asian countries as a whole fell by 4.6 per cent over the 10-month period. The sharpest falls (of over 10 per cent) were recorded by Japan, Taiwan, Thailand, Malaysia and Macao. Only Chinese and Pakistani exporters did better than their Indian counterparts, with increases of 5.9 per cent and 2.4 per cent respectively.

Indian exports of chemical products (SITC 5) did best, rising to just over one billion euro, an increase of 10.6 per cent. Machinery exports (SITC 7) were also up – to over one billion euro, an increase of five per cent. Other manufactured products (SITC 6 and 8), which include textiles and clothing, account for the largest segment of Indian exports to the EU; they rose by 0.5 per cent to 7.5 billion euro. Exports of food products (SITC 0 and 1) and of raw materials (SITC 2 and 4) dropped by six per cent in each case, to 869 million euro and 461 million euro respectively.

Indian exporters will no doubt want to know how their export performance last year compared with that of their Chinese competitors. China remains the second largest exporter to the EU after the United States, and well ahead of Japan, with exports of 67 billion euro during the first 10 months of last year (as compared to148 billion euro for the US and 57 billion euro for Japan). Only the six Asian countries described by the EU as the ?dynamic Asian economies? outperformed China, with exports totalling 76 billion (down 7.8%). The dynamic sextet includes Hong Kong, Taiwan, South Korea,Singapore, Malaysia and Thailand.

Chinese exports of food products and raw materials were over one billion euro in each case, but declined more sharply than Indian exports of these products. While Chinese exports of chemical products were much higher than Indian exports at 2.6 billion euro, the rate of growth was lower. The two groups of products which make up the bulk of Chinese exports to the EU are machinery (26 billion euro) and other manufactured products (36 billion euro). Exports of these two groups grew by 11.2 per cent and 5.1 per cent respectively, growth rates well above those recorded by India (five per cent and 0.5 per cent respectively).

The two biggest exports markets within the 15-nation EU are Germany and the UK, with total imports of 194 billion euro and 146 billion euro in 2002 (10 months). France was in third place, with imports of 100 billion euro, followed by Italy, with 93 billion euro, and the Netherlands, with 91 billion euro.

How are their economies expected to perform during 2003? In other words, what can Indian exporters expect from these key markets?

The EU?s latest economic forecast for Germany makes depressing reading. The growth rate during the first quarter of this year is likely to be zero, and might even be negative again in the second quarter. The German economy is expected to grow by just 0.4 per cent this year, as compared to 0.2 per cent in 2002.

Economic reforms, in the labour market in particular, could accelerate a recovery, by increasing economic confidence. However, the proposals that have actually been transformed into legislation are inadequate when it comes to raising Germany?s low potential growth.

German imports of goods and services fell by 2.1 per cent last year, following a sharp fall in overall domestic demand. The outlook is decidedly favourable, however, with imports forecast to rise by 3.9 per cent this year and by 6.7 per cent in 2004. Even so, these rates are well below the 8.5 per cent and 10.5 per cent recorded in 1999 and 2000.

The UK has outperformed all its EU partners in terms of economic growth. Britain?s economy grew by 1.8% last year, and growth for this year is forecast to be 2.2%, rising to 2.6% in 2004. The French economy is in the doldrums. The EU forecast is for relatively weak economic activity over the next few quarters. The French economy, which grew by 1.2% last year, is forecast to grow by just 1.1% this year and 2.3% in 2004.

Economic growth for the eurozone as a whole came to no more than 0.9% last year, and is expected to rise to 1% this year and to 2.3% in 2004. This is largely because of the poor economic performance recorded by the largest economies in the eurozone, notably the German and French economies.

Developments in the EU should be viewed in a global context. International tensions are reflected in world trade growing at just 2.6 per cent in 2002, after a contraction of 0.5 per cent in 2001, a drop not seen since 1982-83. Although world trade is likely to double to 5.4 per cent next year, it is unlikely to be a motor for global recovery, according to the EU?s economic forecasters. They expect the world economy to grow by 3.2 per cent this year, and by 3.7 per cent in 2004.

The overall situation is not particularly encouraging for Indian exporters. But the experience of their Chinese competitors suggests that export growth is possible even when times are bad. It is also worth pointing out that the 10 central and east European countries (Cyprus, Czech republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovak republic and Slovenia) that are set to join the EU next April have managed to increase their share of EU merchandise trade: they now account for more than 10 per cent of the EU?s external trade (as compared to 1.3 per cent for India). Clearly, where there?s a will there?s a way.