Global Trade Update: Momentum Lost
With eurozone demand stabilising and the UK economic recovery spontaneously bursting into life, the global economy has been given a welcome shot in the arm. Indeed, set against a backdrop of an entrenched recovery in the US and continued emerging market outperformance (albeit from a lower trajectory relative to recent years), the European turnaround will be key to sustaining global growth. However, the macro outlook is still far from rosy, and we highlight the slowdown in global trade momentum as being a major weak point that could yet usurp the recovery.
The chart below, which shows the momentum in total world exports, neatly encapsulates this predicament. The precipitous collapse in trade back in 2008 followed a fairly stylised recovery path: a slowdown metastasizing into full-blown contraction, before entering a recovery phase and then finally back into expansion territory. The post-financial crisis boom has proven short-lived, with momentum subsiding as aggregate exports struggle to hold ground. The situation as of the second quarter of 2013 (the latest quarter for which full data is available) is particularly precarious. From this point exports could suddenly take off in line with the recovery in European demand, or collapse as the world's major surplus states continue to push pre-crisis growth models that have exceeded their use by date. It is difficult to say with any certainty what the near-term direction will be.
A look at the disaggregated data provides additional insight into current dynamics. In recent years developed markets have struggled to expand export market shares, while emerging markets have enjoyed robust headline growth in foreign currency earnings. This disparity has since normalised with both developed and emerging market export growth deteriorating. Most of the big players in the industrialised world - the US, eurozone and UK - have seen growth slide in recent quarters. Even the prized German industrial machine has faltered, with exports now contracting in year-on-year terms. More specifically, the latest data show US exports expanding by a meagre 3.3% y-o-y in July, with the UK experiencing near zero growth of 0.5% in August and eurozone exports falling 5.9% in the same month. Japan is an obvious anomaly among developed states, with exports jumping 14.6% in August on the back of monetary policies (part of the much-hyped Abenomics programme) which have driven down the value of the yen against the other major currencies.
|Going Full Circle|
|Global - World Export Momentum|