Business export opportunities Q3 2021 update: rising demand, rising prices

Our Q3 global trade forecast for 2021 points to recovery in export opportunities: a +8% increase in volume, and a +16.9% increase in value over 2020, while the outlook for 2022 has been revised down slightly since the summer to a +6% increase in volume (vs +6.2%) and +8% increase in value (vs +8.4%). The bumpy road is a product of the ripple effect of the Covid-19 pandemic and its recovery.

“The post Covid-19 recovery is more or less going on at the global level,” says our Senior Economist Françoise Huang. “I say ‘more or less’ because it’s going at different paces across economies.”

While global growth remains strong, it is increasingly uneven amid evolving virus dynamics and pandemic-related uncertainty remains high. This has an impact on export opportunities.

“The health crisis had an impact on production and demand, and thus understandably on trade,” Françoise points out.

As we’ve seen, our current trade forecast predicts a +8% rebound in volume terms but an increase of almost 17% in value terms. That wide gap illustrates strong price pressure.

“This year, the rebound in trade prices and in trading volume is more driven by input restocking and shipping constraints,” says Françoise. Our research shows that so far this year nearly 50% of trade growth in volume terms is due to rising demand for input goods, forcing manufacturers with low inventory levels to scramble for parts, only to find themselves paying higher prices for inputs to match demand – especially in the automotive and electronics industries. 

“Input inventory management is very important to keep up with demand if you want to take advantage of export opportunities,” says Françoise. “Depending on the sector, it can be a kind of protection against any potential further price increases, but at the moment we are in a tight situation that makes it difficult to avoid higher prices of input. If you cannot avoid a rise in your input prices, then I guess a way to protect profitability would be to pass on at least part of this increase to clients.”

Shipping is another issue, accounting for 35% of trade growth in value terms so far this year. “The different paces and different timelines of the post-Covid-19 reopenings mean that the availability of containers at different locations around the world is not in line with the demand,” Françoise points out. “So, in the end actual global supply and demand dynamics have accounted for just 15% of global trade growth in value since the beginning of the year.”

With this array of uncertainties challenging your import-export business opportunities, enlisting the help of a global trade credit insurance specialist like Euler Hermes can insure your risks and assist in resolving difficulties that may arise in collecting your receivables. 

There may be fewer in Asia according to our research, given high regional trade integration and the Delta variant creating a pause in business recoveries. This is creating a glitch in import export business opportunities - notably concerning the region’s dominant economy: China. Meanwhile, most countries in Europe are ready to do business but struggling to restock already low levels of inventories.

The good news is there’s demand, especially for inputs in sectors such as transportation, textiles/apparel, and computers/electronics. “The just-in-case inventory model was widely adopted in these sectors, so manufacturers are now trying to replenish often low levels of inventories,” explains Françoise, outlining additional export opportunities.

“I think in terms of regions, the export business opportunities are still a lot in the US and in Europe,” says Françoise.

We project the US will remain on an above-potential growth path in the coming quarters.

“The stimulus of the Biden administration is creating very good export opportunities for companies that export to the US,” says Françoise referring to the administration’s proposed infrastructure spending and on-going fiscal stimulus, which can have a positive impact on import-export business opportunities.

“These policies are still supporting US growth and they are supporting US demand, so this is an export opportunity for companies that do business with the US.”

The highest additional demand from the US is in household equipment, computers and telecom, automotive, and machinery and equipment. “In dollar terms, China, Mexico, and Canada would benefit most,” adds Françoise.

The post-Covid-19 recovery also implies increased demand from Europe.

“I think Europe still represents an opportunity because, first, we find that most sectors are facing a shortage of inputs, so manufacturers are rushing to order more. It’s particularly acute in the automotive sector,” says Françoise.

There are also export business opportunities to Europe in other semi-conductor-reliant sectors such as electronics, and electrical equipment and systems maintenance, as well as in building supplies.

“Earlier this year we were expecting to see a more robust recovery of the Chinese consumer and manufacturing investment in China. But now, because of the Delta variant and some downside risks materialising, we think China is not going to be the strong driver that we were expecting it to be.”

However, there are still export opportunities to Asia, particularly in construction materials, which continue to be in high demand due in part to governmental stimulus spending, while some countries are looking for processed food products (including cereals).

For more insights into import-export business opportunities, check out our country risk reports  and sector risk reports. You can also visit Trade Match, our proprietary tool that highlights the export risks and opportunities across 17 sectors in 70 markets, to keep up to date with export business opportunities.

Since much of this price increase can be explained by supply-side constraints, base effects and catch-up effects, most of the recent strong rebound in inflation is likely to be temporary. Next year, we expect inflation to be broadly in line with the respective central banks’ inflation targets – that is, 2.2% in 2021 and 1.5% in 2022 for the Eurozone, and 4.2% and 2.2% in the US. Global demand should remain robust in 2022, thanks to the new infrastructure cycle, fiscal stimuli, and continued consumer recovery, with a stronger dependence on ecommerce.

“Even with people going back to stores, we could still see a kind of a legacy with ecommerce being stronger than it was at a global level before the crisis. So maybe that’s a structural change we will witness as the result of the epidemic,” Françoise opines.

Nevertheless, we expect export business opportunities to remain challenged by supply chain constraints for a while yet. Normalisation in shipping capacity is unlikely to occur before 2023, with price and capacity pressures on global trade likely to persist going into 2022, albeit less acutely than in 2021.

“We can still feel the impact of Covid-19 with the ripple effect of lockdowns,” Françoise points out, referring to the unexpected downside risks to economic recoveries and export opportunities associated with the Delta variant. “Those economies that chose the zero-Covid-19 strategy last year, and which made maybe the better choice at the time, now have to find a way to transition away from the zero-Covid-19 strategy, because it is costly for the economy. The renewal of such emergency measures is definitely a risk to import-export business opportunities that we need to monitor.”

The removal of public spending and other supportive measures associated with the Covid-19 pandemic is a risk too. “When these exceptional emergency policy measures are removed, we are likely to see an increase in insolvencies and credit events,” cautions Françoise. “It depends on how these emergency measures are being phased out by each government -- how they announce it, what and when they put it in place, etc.”

Euler Hermes can help your business make the most of your export business opportunities. Whether it’s providing information on international trade or providing solutions like trade credit insurance and surety bonds, our global team, with offices worldwide, can accompany you on your journey.