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Fading trading

After a sharp revival, global trade growth is slowing again:

In, out, shake it all about. Last year was a terrible one overall for global trade. Volumes fell by 14.4 percent, according to the World Bank. But that figure masks whipsawing activity throughout the year. The Netherlands Bureau for Economic Policy Analysis reckons that the volume of world exports fell by 10.6 percent in the first quarter of 2009, grew only slightly in the second and bounced by 3.5 percent in the third quarter. Bernard Hoekman, director of the bank’s trade group, says the three months to September saw a “sharp V-shaped recovery”.

There are two worries to spoil this improving picture. One is what happened after the third quarter. Hoekman believes that there was a “distinct slowdown” in the pace of recovery towards the end of 2009. Preliminary figures suggest that the volume of world trade expanded by just 1.1 percent in November, less than the October increase of 1.4 percent and much less than the 5.4 percent rise in September. The bank reckons that the value of world trade (which is also affected by price and exchange-rate fluctuations) fell slightly in November.

A rebound in shipments in and out of some of the world’s busiest ports also faded. Why would the resurgence have fizzled? The best explanation is that third-quarter growth was buoyed by the rebuilding of inventories, which were slashed in the depths of the crisis. That effect may have ebbed.

The second worry is for the rich world. Growth in global demand in recent months has come disproportionately from emerging economies. True, everyone has benefited from China’s remarkable stimulus spending. The World Bank’s economists point out that China’s share of world imports has grown from around 10 percent in mid-2008 to over 12 percent last year. This has pulled along leading producers of capital goods, like Germany, whose exports grew by a healthy 3.3 percent in the three months to September.

Chinese demand has also boosted Japan’s exports, which grew by 12.1 percent in the year to December. China has replaced America as Japan’s biggest market.

But stronger growth in developing markets is on the whole better news for producers of basic consumer goods than it is for rich-world exporters.

The ten countries whose foreign sales grew fastest in the three months to October were all developing and emerging economies, including several eastern European countries, Indonesia and South Africa.

The fastest-growing rich exporter was Australia, which sends nearly a quarter of the goods it sells abroad to China and India. Nine of the ten countries whose imports grew most rapidly were also emerging economies.

This may change if rich-world growth picks up, increasing demand for the more sophisticated goods that industrialised countries export.

According to the IMF’s latest projections on January 26, rich countries’ GDP will grow by 2.1 percent this year and 2.4 percent in 2011, after shrinking by 3.2 percent in 2009. The fund now expects the world economy as a whole to grow by 3.9 percent this year, up from its October prediction of 3.1 percent.

Faster expansion is good for all exporters although growth in both output and trade will be hurt unless calls for protectionism, which are likely to increase if unemployment remains high, are resisted. Even so, the V-shape may prove to have been a one-quarter phenomenon.

From The Economist print edition


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