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World
trade has been one of the worst casualties of
the global economic slowdown and the source of
some particularly startling figures. Towards the
end of last year trade all but collapsed.
According to the World Bank, the value of
exports from a sample of 65 countries accounting
for 97% of world trade rose by 20.2% in
September, compared with a year earlier. But by
November exports were worth 17.3% less than a
year earlier, before slumping by a whopping
32.6% in the year to January.
In
March the managers of South Korea’s Busan port,
long one of the world’s busiest, said that it
had run out of space to store nearly 32,000
empty containers. The Baltic Dry Index, which
measures demand for the ships that transport
bulk goods such as iron ore or coal, fell from
11,793 at the end of May last year to a pitiful
663 in early December.
Estimates by the World Trade Organisation
suggest that trade volumes will shrink by around
a tenth this year. But recent figures from big
economies give reasons to hope that the worst of
the slump may now be past. Even in May, the
value of trade was nearly a third lower than a
year earlier. But the recent awful figures mask
the fact that exports and imports have held more
or less steady since January.
Month-on-month changes in exports give a better
sense of the decline, and these point to a slump
in trade that was particularly dramatic at the
turn of the year but which has since hit bottom.
The World Bank estimates that the value of
exports for the 44 large economies (which
together account for three-quarters of world
trade) plunged by 7.4% in October and then by
15.4% in November, before holding steady in
December and then shrinking by another 12.2% in
January this year. Since then, however, the
value of trade has more or less held steady.
Other indicators have also improved, though they
are still well below pre-crisis levels. The
Baltic Dry Index has recovered from its pitiful
low, creeping back up to 3,345 on July 24th. The
monthly import cargo volume at big retail
container ports in America exceeded 1m TEUs
(twenty-foot equivalent units) for the first
time in four months during May, according to the
National Retail Federation.
It is too early, however, to conclude that trade
will bounce back. One reason for the rapid fall
was that retailers, faced with falling demand,
ran down their stocks. With those gone, new
orders must be placed to meet demand. This
partly explains the end of the collapse. So does
the fact that governments have pumped vast sums
of money into economies as part of fiscal and
monetary expansions. For now, this is propping
up global demand for traded goods.
But for a sustainable recovery in trade, global
demand has to recover on its own steam. It is
not clear where demand might come from. American
consumers have lost much of their astonishing
appetite for goods ranging from clothes to iPods
to computers. American households are now saving
5% of their incomes, up from essentially nothing
a year ago.
Unemployment in America and elsewhere will
continue to rise. The International Labour
Organisation estimates that the global jobless
tally will increase by between 21m and 50m this
year. More people out of work will mean a
further fall in global demand. China's boom (GDP
grew by 7.9% in the second quarter) is fuelled
by government investment and by the stimulus,
not a rise in private consumption. Nor are other
consumers stepping in.
Without a move towards more private consumption
in countries such as Germany and China, the
world is in for a prolonged period of slow
growth and correspondingly sluggish trade. Over
the past two decades the spread of a global
supply chain has allowed trade to grow
exceptionally fast, and the benefits have been
shared more widely than in earlier eras.
Luckily, the more open world trading system
which allowed trade to thrive has not collapsed.
If open trade survives, trade could recover
smartly when the world economy does. But given
the fundamental problem of deficient demand
still facing the world economy, a recovery in
trade is likely to be some time coming.
Source: Economist |
