THE emerging economies have now begun feeling the painful effects of the financial crisis and recession in the United States and Europe. They are dismayed to discover that their export orders are rapidly shrinking because of a bearish consumer sentiment and tight credit in the West.

The trade data released last week shows a trade slump across Asia, confirming fears that the region’s strategy of export-led growth may backfire once the West buckled. The figures help crystallise a grim economic picture of Asia, although much of the region is less likely to see a downturn of the kind that the United States and Europe are experiencing.

The decline in world trade has come faster than many had predicted only weeks ago. It is evident from a 90 per cent slash in prices by the freight lines that were sailing full this summer following a big drop in cargo traffic resulting in pile-up of unsold goods at ports from Baltimore to Shanghai.

The World Bank had warned earlier that the world economy was on the brink of a rare global recession, with world trade projected to fall next year by 2.1 per cent for the first time since 1982 and capital flows to developing countries predicted to plunge by 50 per cent.

If these projections come true, the downturn could become serious for many Asian countries. In any case, the falling world trade could mean an end to the global export boom that helped bring huge foreign investment and greater trade to nations like China, South Korea, Singapore and India in recent years. Rising joblessness and closure of factories has been forecast in the months ahead.

The volume of world trade, which grew 9.8 per cent in 2006 and was 6.2 per cent this year, will contract by 2.1 per cent in 2009. That drop would be deeper than the last major contraction in trade: a 1.9 per cent decline in 1975. Net private flows of capital to developing countries are expected to fall to $530 billion in 2009, from $1 trillion in 2007. This decline will sharply reduce investment inflows to emerging economies, with annual investment growth slowing to 3.5 per cent in 2009 from 13.2 per cent in 2007.China’s exports and foreign direct investment (FDI) fell in November. Exports dropped by 2.2 per cent to $114.99 billion, the largest monthly decline in seven years, according to official figures. And FDI fell by 36.52 per cent year-on-year to $5.3 billion, Chinese ministry of commerce said. But the country’s trade surplus soared to a record $40.09 billion in November despite a fall in exports because imports fell, too, by 17.9 per cent year-on-year after having risen 15.6 per cent in October. Two-thirds of China’s small-toy exporters closed their businesses in the first nine months of 2008, according to government statistics.

China, whose economy has been growing at more than 10 per cent a year for the past half decade, announced a massive $586 billion stimulus package last month in an effort to maintain at least eight per cent economic growth.

Moody’s, the ratings agency, is, however, of the view that the stimulus programme would have an insignificant effect and would not offset the expected contraction of the economy and negative effects on the manufacturing sector. Beijing has taken aggressive measures to try to spur trade, such as re-introducing tax rebates for exports and helping banks increase lending. But they have so far failed.

Similarly, exports in Japan registered the biggest annual drop in seven years in October, pushing the trade balance into deficit and raising worries of recession. The machinery orders, its major exports, fell 4.4 per cent from the previous month. Exports to Asia fell for the first time since 2002, with sales to China also declining. The slide in exports to Asia indicates that the Asian economies are also taking a blow from weakness in developed economies. Exports fell 7.7 per cent in October from a year earlier, the biggest decline since December 2001, official data shows.

Pakistan’s exports declined in November by 0.76 per cent to $1.527 billion from $1.539 billion a year ago. Pakistan’s trade deficit has risen to an all-time high of $8.736 billion during the first five months (July-Nov) of the current fiscal year, up by 20.27 per cent from $7.264 billion over the corresponding period last year.

India’s exports fell by 12.1 per cent or to $12.82 billion in October from $14.58 billion a year ago. However, imports grew by 10.6 per cent to $23.36 billion in October compared with $21.12 billion in the same month last year. Trade deficit ballooned by more than 61 per cent to $10.53 billion. Exporters are unsure of achieving the target of $200 billion worth of exports fixed for the current fiscal. Morgan Stanley has cut its forecast for Indian economic growth in 2008/09 to 5.7 per cent from 6.5 per cent due to high cost of capital, falling consumer loan growth and reduced demand.

South Korea’s exports also fell sharply in November. They dropped by 8.3 per cent compared to the same month last year to $29.26 billion – the biggest drop since 2001. Imports fell by 14.6 per cent to $28.97 billion for a trade surplus of $297 million. Economic growth next year is expected to slow considerably and the country could experience its first contraction in a decade. The developing countries are expected to grow at an average rate of 4.5 per cent next year. But the forecast for economies in East Asia is not so worrisome where the World Bank expects 5.3 per cent growth, a marked decline from nine per cent the region enjoyed in 2007, and the projected seven per cent this year. Although East Asian countries appear better poised this time to face a crisis than they were in 1997, none looks capable of eluding the adverse effects of the recession in the western economies.

According to The Washington Post, the slowdown illustrates how globalisation, which contributed to rapid growth during times of plenty, can quickly turn against nations during times of bust. Depressed car sales in the United States, for instance, are spreading through the global supply chain, eliminating jobs for contract auto workers in Japan and labourers in South Africa who mine the metals used in car parts.

In November car sales were down 37 per cent in the United States. They were also down by 10 per cent in China, 15 per cent in India and 30 per cent in South Africa. In the old days, if there was a crisis in one part of the world, it would take three to six months to affect another part. But now, everybody is so interconnected through trade that the impact is happening instantaneously.

What is more worrying for the western nations is that China, the only emerging economy which offered a ray of hope to them in these times, is itself in trouble. The US was counting on sales to China to help combat recession at home. The sharp drop in the US trade deficit should, as a matter of fact, generate more jobs as domestic manufacturers pick up the slack left by declining imports. But it is unlikely to happen now. The reason is that many US manufacturing jobs have already moved overseas because products could be made more cheaply abroad. If consumers won’t buy a $600 flat-screen TV made in China, chances are they now won’t buy a more expensive one made in the United States.