The rise of the service industry is bad for emerging markets?
In 2014, the contribution rate of services to the growth of global trade exceeded that of commodities. This was the first time on record, and it was almost certainly the first time in human history.
According to data from the United Nations Conference on Trade and Development (Unctad), short-term services such as tourism, entertainment, and business services contributed 62% to global export growth in 2014, while physical commodities contributed only 38%.
This situation is exactly the opposite of 2013 (the service industry contributed 38% to export growth that year, while the manufacturing industry contributed 62%), and the contrast with the five years ending in 2011 is even sharper. As shown in the first chart, the contribution rate of the service industry in 2011 was only 15%.
Although we should be careful not to derive too many conclusions from a set of data, we have logical reasons to believe that the rise of trade in services and the decline of trade in goods (at least the two are relatively speaking) will continue.
Steve Howard, the chief sustainability officer of Swedish furniture retailer Ikea, said last month, “In the West, people are likely to have reached the'peak of goods'”. When an IKEA executive can say such things, we should probably listen to them.
Data from the International Finance Association (IIF), an industry organization, shows that since 1990, not only developed countries, but also Latin American countries, emerging European countries and China’s service industry’s added value to GDP as a proportion have been steadily increasing. (As shown in the second chart)-Although this trend has stagnated in the Asia-Pacific region except China, it has basically not appeared in Africa and the Middle East.
"We have seen that there is an important trend of differentiation between China and the United States. The development of the service industry is relatively strong, while the development of the industrial industry is relatively weak," said Ren Yongli. He found a similar trend in China, the world's second largest economy.
Charles Collyns, chief economist of the International Finance Association, believes that there are many factors that have led to this trend, and "all of these factors may continue to exist."
First, “increasing global abundance” means that the proportion of consumer spending on basic food and household items will decline, and the proportion of spending on luxury items involving professional personal services such as catering, entertainment, and leisure travel will rise.
Second, the aging of the population has led to an increase in medical expenditures, which further strengthens this trend.
Third, Collins believes that the frontier of technological change is constantly shifting from hardware to software. This is most obvious in the field of information technology (IT), but it is also reflected in fields such as automobiles and robots.
Fourth, Collins believes that although the benefits of manufacturing globalization (such as incorporating low-cost labor from poor countries into the global system) in the past 25 years "may be reaching its limit," the globalization of the service industry may have just begun. .
"The traditional view is that services are basically non-tradable, but now more and more services are provided across borders, which reflects the rapid decline in cross-border communication costs and the increasingly globalization of the entertainment market," he said.
Assuming that the shift in global economic focus to the service industry is a long-term trend, this shift has at least two consequences.
First, considering that the possibility of cross-border trade in services is lower than that of manufactured goods, at least for now, this suggests that people's concerns about weak global trade may be overdone. Slow trade growth does not necessarily mean weak global economic growth.
More specifically, indicators such as the Baltic Dry Index measure overall economic health with less accuracy than ever before. The Baltic Dry Bulk Freight Index, which measures the cost of shipping raw materials, has fallen to the lowest level since records began in 1985. Second, and perhaps more importantly, this shift is bad news for emerging markets.
This question is divided into two parts. First of all, the partial shift from consumer goods to consumer services is being embraced by developed countries. According to data from the United Nations Conference on Trade and Development, services accounted for 21.2% of exports from developed countries in 2014, while only 14.8% of exports from emerging countries. The dematerialization of consumption is also bad news for commodity suppliers, which are concentrated in the emerging world.
Second, considering that the possibility of cross-border trade in services is lower than that of commodities, at least for now, this means that a greater share of the benefits of consumer spending in rich countries will remain in rich countries instead of flowing down to poorer countries.
Collins believes that this is the real reason for the "decoupling" of the economic health of developed and developing countries. The current growth rate of the former is higher than the trend value, and the latter is lower than the trend value.
"In the past economic cycles, rising growth in advanced economies generally increased the demand for finished products and bulk commodities from emerging economic systems, indicating that the global business cycle will be synchronized," he said.
"However, this trade channel is losing its effect, because a considerable part of the demand in developed countries is directed to the service industry-whether it is consumption or investment demand."
Others agree with this statement. Neil Shearing, chief emerging market economist at Capital Economics, said that the shift in the global economy's focus to services has created "structural problems" for developing countries.
"This is an interesting and important debate. Emerging markets need something that can be traded, some kind of high-productivity activity-something that has always been manufacturing in the past."
"Can you get rich through service trade? Is the service industry a high-value-added, high-productivity activity?" he asked.
Schilling did point to some examples of countries that have successfully adopted export-led services in emerging markets, such as IT contracting in India, back-office accounting, human resources, and legal services that are just beginning to develop in Poland.
However, he added: "I think people have reason to think that it is possible to get rich through services, but it is much more difficult (than manufacturing) and it is more difficult to develop. It is helpless to say that the old road to prosperity has disappeared. Suggestion. I don’t think the old road has disappeared, but this road is harder to follow. You need stronger human capital."
Marc Chandler, head of global foreign exchange strategy at Brown Brothers Harriman, believes that the problem may be relatively minor at the moment, but it may worsen significantly in the coming years.