Asia to suffer export weakness through 1H15

1Q's negative impacts will linger longer.

It has been noted that Asian exports began 2015 in a soft patch and export growth so far has fallen short of initial expectations.

According to a research note from Bank of America Merrill Lynch, year-to-date,export data from most of the Asian economies remain in a contractionary territory, as exports to major destinations decelerated.

Meanwhile, commodity price drags also distorted the headline readings of commodity export-dependent economies.

Though growth rates in Asia’s trading partners are expected to turn stronger in 2Q, the report said the negative consequence of 1Q will likely remain through 1H15.

Bank of America Merrill Lynch's latest aggregate S-I ratio also suggests EM Asia export weakness will likely linger into 2Q.

Moreover, the earlier signs of improvement in real exports for a few export-oriented economies turned sour lately, giving Bank of America Merrill Lynch even lesser room for optimism.

Here's more from Bank of America Merrill Lynch:

The disappointing exports growth in 1Q15 was partly attributable to a downturn in exports to China. Exports to advanced economies have somehow cushioned the China impact but not sufficient to mitigate it altogether, as domestic demand in advanced economies also surprised on the downside.

Exports to US in the past few months were affected by supply-chain disruptions associated with West Coast ports and harsh winter weather. Meanwhile, exports to EU remain uneven amid political uncertainty and the sharp depreciation of the euro.

Our US economists recently revised down the 1Q15 GDP forecast to 1.5% (from 2.0%). They are holding with their forecast of stronger growth in 2Q (3.5% yoy), but noted that March indicators were not showing much momentum.

Our European economists are now more optimistic on Europe growth for 2015-16 but note that political risks should remain, threatening stability in the background.

China’s structural slowdown will likely persist throughout 2015 and our economists see some downside risks to our current 2Q GDP forecast at 7.1% yoy.

These are in line with the latest development in Asia inventory position, which calls for more patience on the pace of export growth.

The earlier signs of improvement in real exports for a few export-oriented economies within Asia turned sour lately.

In countries such as Korea and Taiwan, latest real exports edged lower after export price adjustment, suggesting that nominal export growth may not strengthen as much even when oil/commodities get better.

In particular, the moderation in Taiwan’s March real exports, to -2.1% yoy, from +4.4% in Jan-Feb and +7.6% yoy in 4Q14 point to a structural demand weaknesses.

In Korea’s case, tempered by recently very weak offshore exports, March real exports slowed to +6.7% yoy, from +9.3% yoy in Jan-Feb and 7.0% yoy in 4Q14.