LINK BETWEEN INCOME & TRADE STRONG BETWEEN ASIA AND WEST

KUALA LUMPUR, Dec 10 (Bernama) -- The link between income and trade is
stronger between Asia and the West than between North America and Europe,
according to a study by the Economist Intelligence Unit.

A one percent increase in combined income between an Asian country and a
Western country will deliver 1.36 percent increase in trade, based on the
results of study which was announced by world express and logistics company,
DHL.

Trade between Asean and the West will rise 1.35 percent for every one
percent increase in combined income, compared to trading relationship between
two Western countries where a one percent increase in combined income delivers a
1.14 percent increase in trade, it said.

The report, "Fuelling Global Trade: How GDP growth and oil prices affect
international trade flows", looked at trade flows between 39 countries in three
regions -- Asia, the European Union and the North America Free Trade Agreement
(NAFTA).

The study included three countries which are part of NAFTA (the United
States, Canada and Mexico), 25 European Union countries, six largest economies
in Asean along with Japan, South Korea, India, China and Hong Kong in
Asia.

DHL said another key finding showed that based on an average of all the 383
bilateral trade relationships in the study, a one percent increase in oil price
leads to a 0.24 percent reduction in trade.

High oil prices have the greatest effect on Southeast Asia, where trade
decreases the most, it said.

The impact on oil prices is much greater when an Asean country trades with
a nation in the EU (European Union) or NAFTA -- a one percent increase in the
price of oil reduces the value of trade by 0.3 percent.

Assuming no rise in income levels, the value of trade between Asean and the
West would fall by 30 percent over five years if oil prices doubled, as in 2008,
DHL said.

According to the study, the larger impact of high oil prices on Asia, Asean
in particular, is due to the types of goods being traded.

In West to West trade there is a higher proportion of "high-value" goods
such as computers, aircraft and media devices, and a smaller share of
"low-value" goods such as coal and gas, coconuts, palm oil, and textiles and
shoes.

In contrast, Asia nations are likely to have a much higher proportion of
trade centred on low-value goods, it added.

Since transport costs make up a larger share of the final cost of low-value
goods than they do for high-value goods, rising oil prices have a larger impact
on trade growth for Asia, it said.

"Much of Asia has grown up on the back of vibrant trade with the West. But
with the economies of North America and Europe forecast to perform poorly in
2009, the impact on Asia's trade-dependent economies could be serious indeed."
said Justin Wood, a director at the Economist Intelligence Unit and expert on
Southeast Asia.

"This study highlights the impact of slowing global growth on Asia's trade,
and illustrates clearly the need for governments in the region to re-balance
their economies," he said.

"Equally, with oil prices showing extreme volatility this year, and with
the price of oil likely to rise after the current economic downturn passes, this
study identifies further challenges for Asian nations to address, especially in
terms of pushing their manufacturing industries up the value chain," he
added.

The study indicated the slowing Asian growth story and the need to
rebalance their economies, said Frank Appel, chief executive officer of Deutsche
Post World Net, the parent company of DHL.

"The challenge that Asian trade faces today is to hasten the migration to
high value goods and focus on managing their growing dependence on oil," he
said.

The impact of rising oil prices will add risks and negatively impact Asian
international trade, Appel said.

"The study also reveals that for 2009 and beyond, international trade will
depend more on rising Asian incomes than the West," he said.
-- BERNAMA