Attempts to assess current prospects for the world economy have primarily focused on deceleration in US and European GDP growth. But world trade is clearly also indicating negative trends.
Trade is a particularly sensitive indicator as its fluctuations have had a greater magnitude than those for GDP but have moved in the same direction. Trade data is also useful in indicating current economic trends as it is available for recent periods for developing countries many of which do not publish quarterly, and therefore up to date, GDP data.
It is significant for indicating the state of the world economy that the overall volume of world trade is currently at best entirely static and may have turned down. It is important this is affecting both developed and developing economies.
Analysing first the overall trend in world trade, this is shown in Figure 1 – which charts percentage volume changes in world trade compared to the pre-financial crisis peak in April 2008. The numbers on the horizontal axis indicate the number of months since the peak. A three month moving average is used to remove the effect of purely monthly fluctuations.
World trade reached its post-crisis trough in May 2009 at 20.1 per cent below the previous peak. By March 2011 world trade had recovered to 3.5 per cent above the pre-crisis peak. World trade maintained that level in May 2011 and fell to 1.2 per cent above the pre-crisis peak in June – the latest available data. The June dip is only one month, and it is therefore too early to say a decline is taking place, but world trade growth has clearly stalled since March – i.e. since the end of the 1st quarter of 2011.
Theoretically, world exports and imports should naturally be identical, but due to problems in recording and calculation, there is always some disparity in the data. To avoid the possibility of statistical distortions Figure 2 therefore confirms that the same trend appears whether measures of exports or imports are taken.
Developed economy trade
It is significant that the downturn in trade has affected both developed and developing economies – Figure 3 shows the data for developed economies and Figure 4 that for developing ones.
Considering first trade of developed economies, it may be seen from Figure 3 that this has not yet recovered to pre-crisis levels either in exports or imports. Again using a three monthly moving average, developed economy imports peaked in May at 4.6 per cent below their pre-crisis highest level and exports peaked in the same month at 6.5 per cent below their pre-crisis highest level.
Figure 3 shows that there is now no substantial increase in developed economies exports or imports.
Developing economies trade
Figure 4 shows the data for exports and imports for developing economies. Unlike developed economies, both exports and imports of developing economies rose to exceed pre-crisis peaks. Growth momentum in trade was continued for a slightly longer period in developing than in developed economies but has also recently stalled.
Taking a three month moving average, developing economy imports peaked at 11.2 per cent above their pre-crisis highest level in May 2011 before falling back to 8.4 per cent in June. Perhaps more significantly developing economies exports rose to 16.6 per cent above their highest pre-crisis levels in March and by June had slipped to 13.1 per cent above.
It would not be correct to project that trade of developing economies is falling, data over a longer period would be required to establish this, but it is clear that the upward momentum has ended.
This trend for developing economies is significant as recovery in their exports and imports was much more rapid and stronger than in developed economies.
Not all economies are witnessing trade stagnation. China’s latest available data, for July, shows exports at an all time peak of $175 billion, up 20 per cent year on year, while China’s imports were also up 23 per cent over the same period. China, however, clearly does not represent the overall trend in developing economies.
As the biggest factor in China’s growth is now expansion of domestic demand, followed by exports to developing countries, and then exports to developed economies, there is no reason to revise the analysis made previously that the current world economic slowdown will not lead to substantial deceleration of China’s GDP growth. However clearly trends in other developing, as well as developed, economies must be watched carefully for indications of how much they are able to deal with decelerations in export demand.
Overall the trends in world trade strongly confirm a picture of economic slowdown – and the wide spread of this phenomenon. China continues to stand out as the largest exception to the trend – the situation of other developing economies requires more detailed analysis. The present stagnation, at best, of trade in developed economies is evident.
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