Don’t count on a Western import bounceback, warns IMF

The West’s imports will remain low if it follows trends from previous financial crises, according to the IMF, posing problems for countries that continue to focus on exports.

The IMF’s latest working paper suggests crisis-hit countries’ imports are lower “for a protracted period”, judging by data from the period 1970-2009.

Although the reports authors warn of the danger of reading too much into past trends, such an outcome would negatively affect countries which focus on exports to the West.

Some investors argue China in particular falls into this category. The country spends billions of dollars each year holding down its exchange rate against the dollar so as not to damage its export market. (article continues below)

According to the World Trade Organisation, in 2009 China’s exports were $1.3 trillion (£800 billion), or about a quarter of GDP.

However, China has let its currency appreciate slightly against the dollar and has been talking of reorienting its economy towards domestic demand.

By contrast, the IMF says, crisis-hit countries do not tend to suffer low exports over an extended period.

Such an outcome would give hope to Western countries eager to reduce trade deficits and rebalance away from their domestic consumers towards the export markets.