Bet on exports fails to pay off for world leaders
Slowing global trade shows exports are not the economic magic bullet policymakers hope for
When HSBC's economists from around the world recently pooled their forecasts, virtually all had a similar source of growth in mind for the region they monitored: exports.
The impossibility of every nation being able to sell more than it buys means that some of the analysts must be wrong - unless the rest of the solar system became a source of demand for the globe's products, Stephen King, HSBC's chief economist, told an October 16 conference in London, flashing a slide of the planets.
"Export claims are just far too optimistic," said King, a former British treasury official.
The bet on trade is flopping for companies and policymakers who had hoped it would power recoveries held back by weak domestic demand. Last week alone, Caterpillar and Unilever complained of sliding overseas buying and data showed global trade volumes fell in August by the most since February.
Trade is falling short as emerging markets from Brazil to India slow and the US dollar resumes a slide abetted by the Federal Reserve maintaining stimulus.
The deterioration in cross-border commerce could provoke a response from policymakers eager to protect their expansions and even clashes between them if it endured, said Simon Evenett, a professor of international trade at the University of St Gallen in Switzerland.
"Trade would have picked up much more in a normal recovery," Evenett said. "The outlook is more of the same as there is much more economic uncertainty than at the start of the year."
A report last week highlighted the issue: The Hague-based CPB Netherlands Bureau for Economic Policy Analysis estimated global trade volume fell 0.8 per cent in August, eroding a 1.8 per cent jump in July. It was the weakest performance since a 1.1 per cent decline in February and left the three-month average lagging its historical pace.
Data from individual countries reflects the gloom. The US trade gap was little changed in August at US$38.8 billion as exports fell 0.1 per cent and imports barely budged. Mainland Chinese exports unexpectedly fell last month and shipments from Taiwan and South Korea also declined. Even with the yen falling this year, the volume of Japanese exports dropped last month.
The outlook may only be slightly better next year. The World Trade Organisation last month cut its forecasts for trade growth for this year and next to 2.5 per cent and 4.5 per cent respectively, both below the 20-year average of 5.4 per cent. The International Monetary Fund reflected such projections two weeks ago when it cut its own forecasts for worldwide economic growth to 2.9 per cent this year and 3.6 per cent next year.
The trade slowdown stems mostly from developing nations, which had powered the world out of its 2009 recession. The IMF pared its prediction for this year's growth in emerging economies to 4.5 per cent from 5 per cent. Some countries, including China, are also trying to rebalance their economies towards greater domestic demand after running up outsized current account surpluses.
The news is not all bad. A new leading indicator published this week by economists at UniCredit and based on inputs including activity at Chinese sea ports and in air cargo signals a "significant recovery" in global trade in the coming few months.