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HSBC Global Connections Report
October 2013
Global Overview
World merchandise This HSBC Global Connections Report contains a
special focus on trends in the key industry sectors
trade is forecast to grow that contribute to an economy’s productive capacity.
Understanding the prospects for these sectors will help
8% pa to 2030, outpacing to explain the drivers underlying the trade forecasts and
where the greatest opportunities for businesses lie.
GDP growth as barriers
Despite considerable variation across the 23 countries
to trade are dismantled. considered in this report, in every case infrastructure-
related trade is forecast to increase between now and
As investment in 2030 as a percentage of goods exports.
manufacturing capacity Current trade overview
The HSBC Trade Confidence Index reports a positive
and infrastructure increases, outlook for world trade prospects over the next six months,
with an Index score of 112 for H1 2013. However, the
trade in infrastructure-related forecast data shows a more subdued near-term outlook
for emerging markets than expected six months ago,
goods will increase to 54% with a slower recovery in their export growth.
of total goods exports in Even so, exports from China are still forecast to rise
2030, from 45% in 2013. relatively rapidly, underpinning an improvement in world
trade, which will also be supported by rising exports
from other Asian emerging markets. Exports among
Western economies will expand more slowly, but
are set to accelerate from 2016 as GDP growth and
investment recover, with Japan and the USA picking up
speed faster than most of Europe. As a result, world
growth is now forecast to peak slightly later, in 2016-20,
rather than in 2013-15.
Forecast data modelled by Oxford Economics,
based on HSBC Global Research macro data.
Equipping
for growth
As manufacturing production Trade in infrastructure goods
% merchandise exports/imports
increases, companies will 60%
import more investment 50%
equipment. Economies are 40%
likely to boost spending on 30%
large infrastructure projects
as they become richer.
20%
10%
This report forecasts that infrastructure-related trade
will account for 45% of global trade in goods in 2013 0%
(based on our 23 country forecasts). And it is set to 2013 2030
expand further as economies and businesses invest
in their productive capacity. By 2020, it is forecast to Investment equipment Goods for infrastructure
double, and by 2030 we expect it to be three and a Total imports and exports are the sum of imports from the modelled countries
half times its present size.
Infrastructure-related trade is forecast to grow by 9% pa Our forecast indicates that trade in investment
on average between 2013 and 2030 outpacing overall equipment will increase more rapidly than trade in
merchandise trade growth of 8% pa, so that by 2030 intermediate goods for infrastructure in the years to
it will account for 54% of total goods traded globally. 2030. In part this reflects a shift in emphasis in China
towards consumer spending and technology-led
We have identified two separate strands to the investment. The fastest-growing infrastructure import
trade in goods for infrastructure development: the markets over the medium-term are likely to be in the
intermediate goods required for infrastructure projects, rapidly-expanding economies of Vietnam, Malaysia
and the investment equipment needed for businesses and Indonesia, followed by India and Bangladesh.
to boost production. China, Turkey and Egypt are also expected to see
a rapid rise in infrastructure-related imports.
Forecast data modelled by Oxford Economics,
based on HSBC Global Research macro data.
Short-term
snapshot
The HSBC Trade Confidence 51% of companies surveyed around the world expect
the volume of trade to increase over the next six
Index reports a positive months, and a further 34% believe it will maintain
the same level. Just 15% expect a reduction, mainly
outlook for world trade attributed to falling demand for their products.
prospects over the next six HSBC Trade Confidence Index
months, as companies expect
142 (7)
132 (2)
demand to increase. At 112,
127 (-6)
127 (3)
122 (4)
122 (1)
115 (-2)
111 (-15)
114 (3)
114 (7)
112 (0)
111 (1)
108 (-2)
the index is well above the
108 (3)
105 (1)
101 (-6)
100 (-2)
101 (6)
101 (4)
Positive
95 (0)
neutral mark, signalling that Negative 94 (5)
businesses are generally
confident about trade
prospects, particularly in the
USA and Europe, as well as in
much of Asia, especially India.
India
UAE
Indonesia
Saudi Arabia
Turkey
Mexico
Brazil
Malaysia
USA
Egypt
Canada
United Kingdom
Vietnam
Singapore
China
Germany
Hong Kong
Australia
Argentina
France
Total
However, emerging markets are forecast to enter a more
subdued near-term growth phase. China’s TCI score fell
Source: HSBC TCI data
six points since the end of last year to 101, barely above
the 100 neutral mark. Chinese growth prospects were
revised down as the authorities indicated they would
accept slower growth in exchange for rebalancing the
economy towards consumption.
Forecast data modelled by Oxford Economics,
based on HSBC Global Research macro data.
Short-term snapshot continued
Cross-border business Opportunities for business
Greater China is the main trading partner for the Of the companies surveyed, just under one third have
companies surveyed in nearly all regions of the world. offices outside their home country, with the highest
Chinese companies are the most internationally focused, proportion from countries with the most international
with more than 50% of those surveyed trading in nearly outlook, including Europe, Hong Kong and Singapore.
every other world region. By contrast, only 20% of Only 20% of Latin American companies and just 6% of
Latin American companies trade with Greater China, those in India have overseas offices. A similar proportion
preferring instead to create with the more traditional have overseas banking facilities. Just over half of those
markets in Europe and the USA. surveyed expect to need some form of capital financing
in the next six months, much of which will be self-
Key trends financed either with or without external sources of
Greater China remains the most promising region for funding. Companies in Europe and the Middle East are
trade in the next six months according to the survey, the most likely to rely on self-funding.
but its edge over other regions has slipped, with 18%
of companies choosing to trade with China, down from Sector contribution to increase in total exports
21% six months ago. This coincides with the end of 120%
a very fast period of expansion for China, which saw
real GDP grow in excess of 10% a year for more than
20 years. Chinese companies, as well as those from
elsewhere in the Asian region, increasingly need to look
80%
further afield for opportunities to trade.
Latin America has become the second most promising
region, with 14% of companies selecting it (up from just
2% in the first survey). Some of the new interest in Latin 40%
America comes from China, but there is also increasing
interest from North and South American companies to
expand their intra-regional trade.
0%
TCI regional trade trends 2013-15 2016-20 2021-30
400% Food and animals Mineral fuels Machinery and transport
Beverages and tobacco Chemicals Other
350% Raw materials Manufactures
Source: Oxford Economics
300%
250%
200%
150%
100%
50%
0%
Asia Europe North Middle East Latin
America and North Africa America
Middle East and North Africa Latin America Asia
Europe North America
Forecast data modelled by Oxford Economics,
based on HSBC Global Research macro data.Long-term
outlook
Between 2013 and 2030, we Growth in GDP and trade
% year growth
expect global GDP to grow by 15%
an average annual rate of just 10%
under 4%. Asia is expected 5%
to see the fastest growth in 0%
merchandise exports between
now and 2030, with China,
-5%
India and Vietnam averaging
-10%
over 10% annual growth, and -15%
1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040
South Korea not far behind. Trade GDP
Exports from the advanced European economies of the
UK, Ireland, France and Germany are forecast to expand
more slowly, at a little over 3.5% a year, while Japan
and the USA are both set for trade growth to average
around 5.5% a year.
By far the largest contribution to the growth in global
merchandise trade over the period will come from
machinery and transport equipment.
This provides an opportunity for countries able to supply
these goods, particularly for Germany and other developed
economies. But this market will become increasingly
competitive as emerging economies develop their
technical expertise.
Forecast data modelled by Oxford Economics,
based on HSBC Global Research macro data.Long-term outlook continued
Although the UK is expected to see faster growth in
investment equipment exports than other European Equipping the world
countries, this is from a smaller base (especially
compared with Germany) and it will have to focus • The USA is currently the world’s largest
on taking advantage of these opportunities. importer of infrastructure goods, including both
intermediate and equipment goods.
Most East Asian countries have concentrated on export-
driven industrialisation, so investment equipment • But by 2020 India will push the USA out of
accounts for the majority of their infrastructure-related pole position to import the highest share of
exports. India is an exception, with a far lower share of intermediate goods, and China will do the
infrastructure-related exports (predominantly intermediate same for equipment goods. Other rapidly-
goods rather than investment equipment) as the economy growing Asian economies will take an increasing
has historically focused more on exporting services. share of infrastructure-related imports over
time, with Malaysia, Korea and Vietnam moving
Following a recent push to improve its infrastructure and up the rankings.
economic development, India is set to increase its share • Excluding the USA, Mexico is the highest
of infrastructure-related imports from 67% now to 71% ranking non-Asian importer of total infrastructure
by 2030. By 2020 India will overtake the USA, importing goods, ahead of Brazil.
the highest share of intermediate goods for infrastructure
of the countries in our report. • Because of its size, China will remain the
largest exporter of both types of infrastructure
Growth in merchandise exports goods throughout the forecast period, but
% year growth India will become the third-largest exporter of
intermediate goods by 2030 (after the UAE),
16%
up from 11th this year.
12%
Conclusion
This analysis suggests that even as economies develop
8%
and become wealthier, their demand for infrastructure
products remains strong – for both intermediate goods
and for investment in equipment. There is no single
model for the pattern of industrial capacity, infrastructure
4%
spending and wealth creation. While much of Asia
has followed a traditional export-driven industrialisation
pattern, India has still been able to achieve growth
0%
without the same focus on infrastructure, but
infrastructure bottlenecks are now blamed for stalling
USA
Canada
Germany
France
UK
Ireland
Australia
China
Hong Kong
India
Bangladesh
Indonesia
Malaysia
Singapore
Vietnam
Poland
Egypt
Turkey
Saudi
UAE
Argentina
Brazil
Mexico
Japan
Korea
growth. As the country becomes wealthier, it will
increasingly build up its infrastructure.
2013-15 2016-20 2021-30
At the same time, advanced economies like the USA,
the UK and Germany will need to continue investing in
infrastructure to maintain their competitive advantage
in supplying investment goods to the rest of the world.
We expect infrastructure-related goods to increase their
share of rising global trade, providing opportunities for
both exporters and importers of both those goods and
the merchandise that can be manufactured as a result.
Forecast data modelled by Oxford Economics,
based on HSBC Global Research macro data.About the data: About the HSBC Trade Confidence Index:
About the HSBC Global Connections Report — The HSBC Trade Confidence Index is conducted by TNS on
Modelled by Oxford Economics: behalf of HSBC in a total of 20 markets, and is the largest trade
Oxford Economics has tailored a unique service for HSBC which confidence survey globally. The current survey comprises six-
forecasts bilateral trade for total exports/imports of goods, based month views of 5,800 exporters, importers and traders from small
on HSBC’s own analysis and forecasts of the world economy, and mid-market enterprises on: trade volume, buyer and supplier
to generate a full bilateral set of trade flows for total imports and risks, the need for trade finance, access to trade finance and the
exports of goods and balances between 180 pairs of countries. impact of foreign exchange on their businesses. The fieldwork for
Oxford Economics produces a global report for HSBC, plus regional the current survey was conducted between May – June 2013 and
reports and country specific reports on the following 23 countries: gauges sentiment and expectations on trade activity and business
Hong Kong, China, Australia, Indonesia, Malaysia, India, Singapore, growth in the next six months.
Vietnam, Bangladesh, Canada, USA, Brazil, Mexico, Argentina,
UK, France, Turkey, Germany, Poland, Ireland, UAE, Saudi Arabia, Equipping for growth – Methodology:
and Egypt. This report looks at the key industry sectors that contribute to an
economy’s productive capacity. This will include not only trade in
Oxford Economics employs a global modelling framework that the intermediate goods required for infrastructure projects, but
ensures full consistency between all economies, in part driven also trade in the investment equipment required by businesses
by trade linkages. The forecasts take into account factors such to boost production.
as the rate of demand growth in the destination market and the
exporter’s competitiveness. Exports, imports and trade balances It collects key investment-related sub-sectors into two groups,
are identified with both historical estimates and forecasts for the defined as “intermediate goods for infrastructure” and “investment
periods 2013–15, 2016–20 and 2021–30. equipment”. As the sectoral trade forecasts are based on the
UN’s Standard International Trade Classifications at the two-digit
The model looks at two-digit classifications from the COMTRADE level, this does present some issues in accurately defining the
database, grouped into a set of thirty headings. The sector data sub-sectors that contribute to investment, due to broad sectoral
has been tracked by country, to give an insight into the primary definitions.
drivers of trade between the 25 countries and territories in the
sample. The sector data has been calculated to show growth Intermediate goods for infrastructure:
as a percentage of the overall contribution to growth, to ensure 66 – Non-metallic mineral manufactures
that the model highlights the sectors which are representing the 67 – Iron and steel
biggest drivers of growth. More information about the sector 68 – Non-ferrous metals
modelling can be found on: www.globalconnections.hsbc.com 69 – Manufactures of metals
76 – Telecoms equipment
Oxford Economics – formerly Oxford Economic Forecasting – 81 – Prefabricated buildings
was founded in 1981 to provide independent forecasting and analysis, 79 – Other transport equipment
tailored to the needs of economists and planners in government
and business. It is now one of the world’s leading providers of Investment equipment:
economic analysis, advice and models, with over 500 clients. Oxford 71 – Power-generating machinery and equipment
Economics commands a high degree of professional and technical 72 – Machinery specialised for particular industries
expertise, both in its own staff of over 70 professionals based in 73 – Metalworking machinery
Oxford, London, Belfast, Paris, UAE, Singapore, Philadelphia and 74 – General industrial machinery and equipment
New York, and through its close links with Oxford University and 75 – Office machines and automatic data-processing machines
a range of partner institutions in Europe and the USA. 77 – Electrical machinery, apparatus and appliances
87 – Professional and scientific instruments
Based on the same underlying forecasts used for the existing
analysis of trends in bilateral trade flows, the report examines how
exports/imports of these two aggregates are expected to evolve
over time. The import forecasts for these aggregates will be linked
to the underlying investment requirements of the economy, while
the export forecasts will be linked to the economy’s ability to
produce the investment goods required by other nations.
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