19/8/19: Import Zamescheniye: Replacing Imports with Imports in the Age of Trade Wars

Trump trade wars have led to increasing evidence of substitution by Chinese exporters to the U.S. with exports via third countries and supply chain outsourcing from China to other destinations. While direct evidence of these trends is yet to be provided (data lags are substantial for detailed flows of goods across borders) and is never to be treated as fully conclusive (due to differences in trade goods designations), here is some macro-level snapshot of latest data on U.S. imports shares for selective countries:

The chart above shows that based on trends, U.S. imports arrivals from China are down in 2017-2019, and they are up, significantly for Vietnam and Taiwan, with less pronounced evidence of imports substitution from other Asia-Pacific countries.

Given several caveats (listed below), the above chart is a 'messy' one:

1. Supply chain substitution takes time and may not be fully reflected in the 2018 data, or to a lesser extent, in 2019 data to-date; and
2. The above chart is based on monthly frequency data, which is volatilion (e to begin with.

With these caveats in mind, here is a chart based on annualized data:

Now, it is easier to spot the trends:

• China exports to the U.S. are down, sharply, especially considering pre-Trade Wars averages against Trade Wars period 2019 averages;
• Vietnam, Taiwan and Mexico are major channels for trade/import substitution (using Kremlin's term "import zamescheniye").
• Japan and Thailand are smaller-scale winners.
• Malaysia and Indonesia are basically static.

Now, historically, China has been beefing up its corporates' use of Vietnam, Thailand, and Mexico as platforms for supply chain diversification, which is consistent with the data responses to the Trade Wars. Indonesia and Malaysia are two surprises in this, although both experienced uptick in FDI from China in late 2018, so the data might not be showing these investments, yet.

16/5/16: 1Q 16 GDP growth and other recent stats on Russian Economy

Russian GDP (preliminary estimate) shrunk 1.2% y/y in 1Q 2016, with the rate of contraction in the economy moderating from 3.7% for the full year 2015 and from 3.8% drop recorded in 4Q 2015. So the economy is still shrinking, albeit at a slower pace, and slower, yet, than consensus annual forecast for the decline of 1.7%.

Some interesting developments on inflation front too.

April CPI was up 0.4% m/m and 2.5% y/y which is well below m/m and y/y inflation recorded in April 2015 at 0.5% and 7.9%, respectively. Food inflation was running at 5.3% y/y in April 2016 against 21.9% registered in April 2015. January-April 2016 y/y inflation in food prices was 'only' 6.5% which compares against 22.2% inflation in food prices registered in January-April 2015. HICP inflation for April 2016 was 7.6% y/y and January-April 2016 period HICP inflation was 8.8% y/y, against corresponding figures for April 2015 and January-April 2015 at 17.5% and 16.6%, respectively. Amongst food products: Meat and poultry (-0.2% y/y for the first four months of 2016), Sugar (refined) (-0.2%) and Fruit & Vegetables (-1.9%) registered deflation in prices over the first four months of 2016 compared to 2015. During the corresponding period of 2015, all categories of food products registered double-digits inflation.

Consumer price index evolution in 2015 and 2016 by month

Source: State Statistics Committee http://www.gks.ru/

Trend toward much more subdued inflation continued in the first ten days of May 2016, based on preliminary data.

Meanwhile, imports substitution policies are starting to finally show some positive payoffs (albeit, helped heavily by massive ruble devaluations of the recent 18 months):

• Beef production rose 4.34% in 2015 compared to 2010-2013 average;
• Pork production was up massive 73.6%
• Meat products are up 18.8%
• Fish & sea food however shrink 5.82% in 2015 compared to 2010-2013 average;
• Milk and milk products output was up 5.99% in 2010-2013 average.

1/12/15: Russian Manufacturing PMI: November

Russian Manufacturing PMI released by Markit remained within near-zero growth territory, posting 50.1 in November, down on 50.2 in October. Overall, some positives and key negatives were:

• Both output and new orders rose at fastest pace in 12 months; 
• Growth conditions in manufacturing remain extremely sluggish; 
• New export orders fell “at sharpest rate in seven months”;
• Workforce continued to contract, as “employment levels have contracted in each of the past 29 survey periods”;
• Most of uplift in production was signed to agricultural sector production rise (Russian grain crop posted second strongest performance at 117 mL tons through early November, after there record 2014 crop);
• Majority of new orders increases took place in domestic markets

So overall, Russian Manufacturing showed repeated signs of weak stabilisation, but virtually no signs of recovery.

16/4/15: Newsweek on Russian Economic Recovery

An interesting piece on not-so-tanking Russian economy: http://www.newsweek.com/2015/04/24/putin-was-right-be-confident-about-russias-economy-321934.html

The key point is the same I have been repeating throughout my earlier notes: imports substitution.

The only problem is that absent investment, imports substitution is reversible. To make it sustainable, Russia needs reforms and investment. And the two are in short supply, still.

17/12/2014: Russian Industrial Production & Investment

Russia's industrial output fell 0.4% in November after two months of relatively strong growth, expanding 2.9% and 2.8% in October and September. Core drivers were:

• Manufacturing sector contracted at 3% in November, having expanded 3.6% in October. The latest change, if confirmed over the next few months, might signal wearing off of the imports substitution effects from Russian counter-sanctions.
• Natural resources exploration sector expanded output by 2.5% in November
• Production of heat and electricity rose 7% in November
• Pipeline production grew by 30% in October, gas turbines manufacturing rose 91%. The $400 billion gas contract with China, signed in May was the reason, as Russia started construction of the 4,000 km Power of Siberia pipeline in September.

Note: November Manufacturing PMIs were up http://trueeconomics.blogspot.ie/2014/12/1122014-russia-manufacturing-pmi.html signalling that things might improve in December data.

On a no-surprise side, fixed capital investment was down in the first nine months of 2014 and in Q3 2014 - declining by around 2% or well below expectations. SMEs investments declined, while investment by larger companies rose. Oil refining investments remain the largest contributor to manufacturing sector investments, per BOFIT. Food sector investments also were robust. Q3 also saw reversal of negative growth in total investments in machinery & equipment by large and medium-sized firms.

BOFIT: "Growth in investments of large firms reflects the government’s goal, reinforced at the start of this year, of getting large state-owned enterprises to increase investments
despite the hard times. The economy ministry indicated in November that investments of so-called natural monopolies, which represent some of the biggest state-owned enterprises, will grow even more notably next year."

Another handy chart via BOFIT: