Higher growth: Trade rebounds in Asia

The pattern of recovery in international trade is in line with the growth prognosis for the global economy as seen by the International Monetary Fund and other major global institutions, which believe that developing countries led by China and India will post higher growth rates than the developed countries.

The World Trade Organization foresees a sharp recovery in global trade in 2010. The projected 9.5 percent growth, apart from being impressive by itself, will also represent a sharp rebound from 2009, when world trade contracted as never before in seven decades.

Exports from developed countries are forecast to rise by 7.5 percent. Shipments from the rest of the world will grow by around 11 percent.

The pattern of recovery in international trade is in line with the growth prognosis for the global economy as seen by the International Monetary Fund and other major global institutions, which believe that developing countries led by China and India will post higher growth rates than the developed countries.

The strong expansion in trade during the current year will help recover some, but by no means all, of the ground lost in 2009. It would take another year of similar expansion to surpass the peak trade volumes of 2008. Practically all forecasters had underestimated the extent of trade decline during the crisis period. The WTO’s estimate of 10 percent fell short of the actual figure by more than two percentage points.

The sharp decline in trade volumes is attributed to the abrupt fall in global demand. The financial crisis contributed to the lower demand in at least two ways. In the rich countries the home mortgage crisis weakened considerably the spending power of households, and in general, consumers tended to postpone their buying decisions. The complete drying up of trade finance was another factor. It is also true that trade statistics were exaggerated in the first place.

The complex supply chains used by producers resulted in the movement of goods across several national boundaries before reaching their destination. This caused double counting. Also, some articles, notably consumer durables have a disproportionately large share in global trade compared to their share in global output.

So as people stayed away from discretionary goods, the decline in trade was steeper than that of global output. The WTO says the multilateral system of trade has proved its value, assisting governments in keeping markets open during difficult times. According to an official study prepared for the WTO and two other organizations, the feared surge in protectionism has not occurred even in the recovery phase. Yet there are many critics who say that more subtle forms of protectionism are now practised.

Courtesy: The Hindu