• In many respects we should no longer expect the US to be the sole locomotive to pull Euroland out of crisis. We should also look to Asia. Exports to Asia are one of the drivers that we believe will help to get Euroland back on track.
  • We expect the strong recovery in Asia to continue. A return of Euroland exports to Asia to previous peak levels will lift Euroland GDP by about 0.35%. We project this to happen quickly and expect Asia to continue as a growth engine thereafter.
  • The Asian recovery should in particular benefit Germany, which is the most open of the large Euroland economies. A return of German exports to Asia to peak levels would add 0.6% to GDP. For France this would only add 0.2% of GDP.
  • Looking further into the composition of exports we see that Germany benefits from a favourable export mix with a high share of capital goods exported to Asia. This is likely to benefit Germany in the recovery phase.
  • Euroland competitiveness briefly benefitted from the depreciation of the euro relative to the US dollar, the yuan renminbi and in particular the yen, which took place in the second half of 2008, but has partly been reversed since then.

Asia has risen to become a vital trading partner

A decade ago Euroland exported almost as much to the US as it did to the whole of Asia. This has changed dramatically and today Asia has become almost twice as important as the US as a destination for Euroland exports of goods and services.

China, Japan and the ASEAN (Association of SouthEast Asian Nations) countries are centre stage in the Asian recovery story. Together this group accounts for about 12% of Euroland exports – equivalent to the share of exports that is destined for the US. In addition the Asian country group has a much higher growth potential than the US, so from a trade growth perspective we should focus much more on what is going on in Asia than in the US.

The rise of Asia has been led by China. The share of exports heading for China (including Hong Kong) has doubled within a decade and today more than 6% of Euroland exports are destined for China. India is a rising star too and may soon account for as much Euroland export as Japan, which has seen its share of Euroland exports dwindle for a decade. The prospects for growth in both China and India are very positive and we should expect to see their export share continue to grow for another decade.