World Trade - August 2008 - (Page 26)

COVER STORY The growth in emerging countries is expected to remain resilient. albeit eroded by the won appreciation. Small companies focusing on the domestic market have been weaker. Financially, sovereign risk has remained low. Despite the decline of the current account surplus in 2007 and the expected emergence of a deﬁcit in 2008, foreign debt remains limited. Although South Korean banks are sound and proﬁtable, the extent of household debt raises fears of new difﬁculties should interest rates increase sharply. The political tensions with North Korea seem to be easing. The presidents of the two Koreas—Roh Moo Hyun and Kim Jong-Il—have committed themselves to opening negotiations. Prospects for a peace treaty are nonetheless still uncertain: With the December 2007 presidential elections allowing M. Lee Myung-Bak of the opposition Grand National Party to succeed Roh Moo Hyun, a tougher policy toward Pyongyang could emerge. In the domestic sphere, the new President, M. Lee Myung-Bak, and the future government resulting from the April 2008 legislative elections will be expected to undertake reforms as regards combating corruption and improving corporate transparency. Chaebol governance, characterized by family control and hereditary succession, remains a particularly large challenge. imports. Less buoyant demand from European trading partners and the euro appreciation in dollar zones will keep exports from achieving enough growth to improve the current account balance. Bankruptcies have begun to increase again (up 9 percent in the ﬁrst half last year). This trend reﬂects the erosion of corporate margins, particularly those of smaller companies, unable to pass price increases for energy and certain raw materials on in their sales prices. The effects of that phenomenon have been exacerbated by excessively slow productivity growth coupled with the overly steep rise of labor costs. Rising agricultural raw material prices could undermine certain intensive grain-user food sectors like meat and dairy products. The situation has, moreover, remained shaky in subcontracting to the car industry and aeronautics, paper/cardboard processing and textiles. The Coface payment incident index has nonetheless stabilized near the world average, and companies should generally remain proﬁtable in 2008. Taiwan Growth slowed slightly in 2007 reﬂecting the slower growth in the United States, the Island’s main trading partner considering that about 70 percent of Taiwanese exports to Mainland China are subsequently re-exported to the United States. Foreign trade will cease being the main growth engine in 2008, with the domestic demand recovery making it possible to partially offset the reduced contribution of net exports. The electronics sector, responsible for 50 percent of Taiwanese exports, achieved good performance, thanks to the Island’s specialization in high value-added products with labor-intensive activities relocated to Mainland China. In this moderate-slowdown context, the payment experience recorded by Coface deteriorated with the margins of Taiwanese companies declining in 2007 for the third straight year. The external ﬁnancial situation remains robust with high foreign exchange reserves (the world’s fourth largest in value terms) and a substantial, though declining, current account surplus. The accumulation of ﬁscal deﬁcits has, however, resulted in the build-up of substantial public sector debt, representing 50 percent of GDP. The institution of greater discipline—especially via tax reform that puts pressure on companies—has been stalled by the quasi-systematic opposition of parliament. The banking system, meanwhile, has to carry on with its restructuring program. In the run-up to legislative and presidential elections, in January and March 2008 respectively, the decision process on economic matters has been impeded by growing tensions between the Kuomintang and the People First Party, which have the majority in parliament, and President Chen Shui-Bian’s Democratic Progressive Party. Weakened, moreover, by corruption scandals, President Chen has intensiﬁed his anti-Chinese rhetoric. This resurgence of tensions with Beijing could, nonetheless, ease if the opposition, believed to be more amenable to dialogue, comes out with the majority in the forth- France Economic growth was slightly slower in 2007, underpinned mainly by household consumption (57 percent of GDP). Spending did not accelerate as expected, however, with hi i b households preferring to increase their savings substantially. The tax exemption granted for interest on property loans made it possible to postpone a soft landing for residential investment. Corporate productive investment remained at an acceptable level spurred by a lack of production capacity in many sectors. Foreign trade again made a slightly negative contribution to growth. The growth trend should remain steady in 2008. Households should continue to spend at essentially the same rate registered last year with additional tax breaks partly offsetting rising prices for energy and food products. Stricter conditions for property loans will affect residential investment, which will continue to mark time and thereby contribute to the job creation slowdown. Public works, meanwhile, will remain buoyant, thanks to orders from local communities spurred by municipal elections. Higher loan rates and difﬁculties in arranging ﬁnancing should prompt companies to postpone somewhat their investment project. The continuing decline of their proﬁtability (down from 8.5 percent of GDP in 2000 to 5.2 percent in 2007) and cash ﬂow ratios (from 85 percent in 2000 to 60 percent in 2008) has made them particularly sensitive to the cost of the credit on which they have increasingly relied since 2004. The weaker domestic demand will slow the growth of 26 WORLD TRADE AUGUST 2008

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World Trade - August 2008 Contents Weathering the Storm Helping the World’s Poorest Nations Benefit from Global Trade Supply Chain Watch Tradewinds World Trade’s Top U.S. Trading Partners LTL Shipping ‘On the Fly’ Air Cargo Flies a New Heading Getting More from China Sourcing Why 3PLs Need a Seat at the C-TPAT Table Performance-based Supply Chains Drive Total Lifecycle Value SmartWay Navigates Sustainable Transportation Around the World in 80 Days—Hours—Minutes

World Trade - August 2008

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