Wednesday, March 3, 2010

The Economist: World Trade Recovery in Progress, But Strength of Rebound Remains Uncertain

Before Greece became famous for its massive debts, it was known mostly as the nexus of global shipping companies - at least in investment circles.  While there still appears to be a large oversupply of ships relative to demand, and apparently countless ships still sit unused off the shore of Singapore... we've come a long way from that moment when global trade sat in suspended animation as letters of credit were unable to be obtained.. [Oct 31, 2008: Credit Tsunami Swamps Trade] [Nov 3, 2008: UK Telegraph - Investors Shun Greek Debt as Shipping Crisis Deepens]

Much more interesting in terms of telling the tale of the economy than the usually faulty government data, is information coming out of both the domestic and global transportation industry.  The Economist takes a look at the rebound at global trade - and prospects go forward.  The figures in the story highlight a trend we see in many economic figures - they have rebounded from the type of lows / drops almost never seen in modern economic history but still sit far below "normal".  And even doing that relied on historic government intervention.  The question go forward is what shape will demand take when the baton is supposedly passed from public spending to private:

  • IS THE glass half empty or half full for world trade? Figures released on March 1st by the Netherlands Bureau for Economic Policy Analysis (CPB), which maintains a close watch on global trade volumes, point to renewed vigour at the end of 2009. Trade volumes rose by 6%, quarter-on-quarter, in the final three months of the year.
  • But these figures also underline just how severely trade was affected by the global recession. The CPB reckons that volumes shrank by a staggering 13.2% during 2009. They have fallen in only two other years since 1961, when comprehensive data begin. But those declines—by 1.9% in 1975 and 0.9% in 1982—pale in comparison with last year’s huge drop.
  • Still, a revival is clearly under way. The volume of trade went up by 5% in December alone. Weak growth of 1.2% in October and 1.1% in November might have suggested that the recovery which began earlier in the year was faltering.
  • Unfortunately, it may be too early to be sanguine about a sustained recovery in trade and thus in the world economy. Figures from the World Bank, which track the value rather than the volume of trade, point to a deceleration in the final quarter, not the acceleration that the CPB’s data suggest. According to the bank, the value of exports from a sample of 56 countries making up the lion’s share of world trade continued to rise in the final quarter, but at a slower rate than in the third quarter.
  • December is typically a good month for global commerce because of holiday spending in many parts of the world. Strength in December is therefore by no means sure to have continued into the new year.
  • Looking ahead, it is not hard to see threats to trade’s recovery. Global demand is still being propped up by government intervention on an enormous scale. Its withdrawal, if mistimed, would pose fresh dangers for the global economy, and with it for trade. As Caroline Freund of the World Bank points out, “There is a risk of stagnation in 2010, as restocking is completed and effect of the stimulus on demand growth wanes. While the stimulus will continue to boost trade volumes in 2010, any growth effect will be much smaller.”
  • By the end of the year trade values had risen by almost 30% from their nadir last February. However, the World Bank’s economists point out that they were still 20% lower than before the crisis. They think they are 40% below where they would have been had the crisis never happened. World trade may be on the mend, but its recovery is far from complete.

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