[SINGAPORE] South-east Asian countries are set for accelerated trade growth over the next five years, with Vietnam, Indonesia, and the Philippines projected to rank among the top 30 globally in both trade-growth speed and absolute volume increase, according to DHL.
The improvement in macroeconomic fundamentals in 2024 – including easing post-pandemic inflation and a rebound in trade growth following a modest decline in global trade volumes in 2023 – is expected to further accelerate global trade growth this year, said the shipping and logistics giant in a recent report.
It forecast that global trade volumes are set to grow at a baseline compound annual rate of 3.1 per cent from 2024 to 2029.
By region, Asean is expected to witness the third-fastest growth in trade volume of 5 per cent by 2029, behind South and Central Asia at 5.6 per cent, and Sub-Saharan Africa at 5.3 per cent.
China plus one
One of the key drivers of trade growth in South-east Asian countries is the increase in supply chain diversification strategies, as businesses seek to move their supply chains out of China to alternative locations.
Vietnam, for instance, has benefited in the past as a favoured alternative for electronics manufacturing. The report forecast that such growth is likely to continue, with the country poised to maintain a 6.5 per cent compound annual trade volume growth rate from 2024 to 2029, up from 6.2 per cent between 2019 and 2024.
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The report added that, among the other South-east Asian countries, Indonesia is set to experience such benefits as well through its emergence as a hot spot for the metals and chemicals industries.
Notably, the Philippines, while having reaped fewer benefits from supply chain diversification in the past, is expected to rapidly accelerate its trade volume growth from 0.5 per cent between 2019 and 2024 to 7.4 per cent in the coming five years on the back of such trends.
“The Philippines has a diverse and growing economic landscape in manufacturing, particularly semiconductors, electronics and automobiles, with import and export numbers picking up year on year,” said Ken Lee, chief executive of DHL Express, Asia-Pacific.
Tariff troubles
The report noted that its findings dispelled several common fears about global trade associated with the re-election of US President Donald Trump.
Not all of Trump’s proposed tariff increases are likely to be implemented, the report said. Recent negotiations between Trump and the leaders of Mexico and Canada have also indicated his intention to use the tariffs as a bargaining chip with US trade partners.
Still, the report found that, if fully implemented, Trump’s tariff proposals will substantially slow global trade. One study warned of a 7.5 per cent reduction in global trade volumes relative to baseline forecasts, with US imports dropping by 50 per cent, while trade among all countries except the US increased by 5 per cent.
“Nonetheless, trade volumes are still forecast to continue growing even under the most extreme tariff-increase scenarios,” stated the report.
Rival trade blocs unlikely
Furthermore, while studies have suggested that geopolitical rivalries between the world’s two largest economies may result in two increasingly disparate trade blocs composed of each country’s allies, the report said that the impact of these shifts remain limited.
A growing 47 per cent of global trade in 2024 involved countries that are not close allies of either China or the US, up from 42 per cent in 2019.
“The risk of a US pullback from trade might actually push other countries to redouble efforts to secure their access to other international markets,” the report said.
It noted that global trade is likely to shift away from the US and China, with the two economies predicted to generate just 22 per cent of the world’s trade growth from 2024 to 2029, down from 32 per cent between 2019 and 2024.
Nearshoring not yet widespread
While potential disruptions in supply chains arising from geopolitical trade tensions have sparked keener interest in nearshoring, or the practice of manufacturing goods closer to a business’ consumer base, the report said that its data actually indicates the opposite trend.
It found a clear (albeit modest) rising trend since 2019 in the distances over which countries trade, with a record average of 5,000 km achieved in 2024. The share of trade happening within regions also hit a record low of 51 per cent in 2024.
This can be explained by “Factory Asia” becoming increasingly important as a manufacturing centre to businesses in Europe and North America, it added.
