India is expected to become one of the world’s fastest growing exporters, HSBC’s latest Trade Forecast has revealed.
Despite India’s economic growth slowing to less than 5% a year in the past two years, from 8% over the past decade, the trade forecast is that “there is scope for India to rebalance away from the domestic economy towards exports” and “move from the 14th largest exporter of goods by value to the world’s 5th largest”, between 2014 and 2030.
Looking ahead at the countries predicted to experience the fastest export growth over the next 16 years, the top 10 list consists unanimously of emerging market economies.
Five of the top six countries are in Asia: India, China, Malaysia, Vietnam and Indonesia. On average, growth is expected to be between 8% and 11% in these respective countries.
Globally, the machine and transport sector was identified as one that will be the fastest growing: “Trade in this area is projected to grow by around 8% a year from 2014 to 2030, reflecting the ongoing evolution of global supply chains,” says the report.
India has also been identified as a future export hub for the automobile sector.
As the rupee depreciates, there are signs that global car companies are increasing their interest in expanding operations in India; with the weaker rupee the availability of skilled labour on offer comes at a discounted cost.
The recent decline in China’s competitiveness will provide a further boost to India’s automobile and related exports. The Trade Forecast predicts exports of transport equipment to grow by nearly 15% in the period, which will outpace the 11% year-on-year growth of total exports forecast.
Sandeep Uppal, managing director and head of commercial banking at HSBC India, says: “The economic potential for India remains strong, with the growing population and rapidly expanding middle class it presents opportunities for business. India is forecast to emerge as the world’s largest middle class market, surpassing both China and US.”
“While India is already well known for IT, in the medium-term we foresee strong growth in pharmaceutical exports with auto as a sector to watch out for in the longer term,” Uppal adds.
Businesses were surveyed about their confidence with regards to near-term global trade prospects and the majority expect trade volumes to rise over the next six months.
There was “an upturn in the sentiment across much of Asia” states the report, with emerging countries India, Bangladesh and Indonesia singled out as markets with the best positive trade sentiments. Nearly 42% of all respondents saw Asia as having the best opportunity for business growth in the next six months.
Medium-term growth in trade is forecast to be strongest in emerging Asia, where “huge domestic markets, infrastructure investment and rising consumer purchasing power driven by an expanding middle class are supportive of a long-term expansion in trade” the report adds.
Commenting on the results and UK-India trade links moving forwards, Mark Emmerson, UK head of global trade and receivables finance, says: “As our global report shows, India will be a vital source of growth opportunities – its imports will increase fivefold by 2030, and will be second only to China as the UK’s fastest-growing trading partner over the coming 10-15 years.”
The US dollar was cited as the main trade settlement currency for 64% of survey respondents, followed by the euro, at 20%. Interestingly, this is in stark contrast to recent Swift figures, which indicate that the renminbi (Rmb) overtook the euro as the second most used currency in global trade settlements earlier this year.
However, HSBC’s findings show that businesses are increasingly using the Chinese currency for trade financing and invoicing and that it is now the most popular emerging market currency. The Trade Forecast highlights China’s continuing growth projections of the share of world trade, “reflecting its position as an export powerhouse and a very large target market for foreign sellers”. Its share of world exports is projected to climb by 11% to 29% by 2030. The forecast adds: “It alone will account for a third of the anticipated increase in global trade over the period.”