World Economy

Market selloff belies a robust global economy

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The flare-up in geopolitical tensions in recent weeks may have shaken investor sentiment, but markets can take comfort in the state of the global economy, which seems to be showing increasing signs of strength.

On Friday, China, reported an impressive 14.5 percent on year rise in exports for July, doubling from 7.2 percent in the previous month, reflecting a broad-based pickup in external demand.

"As has been the case since the beginning of the year, exports to G3 [U.S., euro zone and Japan] continue to charge ahead. But non-G3 markets also staged a better than expected rebound, with exports to regional manufacturing economies registering a sizable improvement," Qu Hongbin, Co-Head of Asian Economic Research, wrote in a note.

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"If this can be sustained for the next few months, this could be the beginning of a turnaround in regional trade," he said.

Exports to G3 markets posted a robust performance, with shipments to the euro zone, U.S. and Japan, surging 17 percent, 12 percent and 3 percent, respectively, up from 13 percent, 8 percent and -1 percent in the previous month. Shipments to smaller, regional markets also fared well, led by 32 percent growth to South Korea, after a flat performance in the month earlier.

China is not the only country in the region to see a notable pickup in exports. In July, South Korean, exports grew 5.7 percent on year, their fastest clip in seven months. Meanwhile, India, the region's third largest economy, saw exports climb by 10.2 percent on year in June, after surging 12.4 percent in May.

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Shane Oliver, chief economist at AMP Capital, says China's export data is consistent with evidence that the world economy is continuing its 'slow grind higher'.

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"It confirms the view that the U.S. economy is picking up and maybe suggests Europe is doing better than many give it credit for," he said.

Concerns over Europe's recovery have risen after Italy unexpectedly slipped back into recession during the second quarter and as the stand-off between Russia and the West shows no sign of resolution. On Friday, news that U.S. President Barack Obama has authorized military air strikes in Iraq sparked a selloff in global markets already spooked by escalating Middle East tensions on the back of the ongoing Israel-Gaza conflict.

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Oliver says geopolitical tensions may act as a damper on global economy, but is not enough to reverse its growth.

"In fact, all these uncertainties which are having a negative impact on confidence, could delay tightening by the Federal Reserve which may in turn be positive for the global economy," he said.

The U.S. central bank is expected to begin hiking rates in the first half of 2015, as recovery in the world's largest economy gathers pace.