Timing world trade recovery

There are two kinds of factors that are driving this slowdown in trade growth: cyclical and structural

According to Dr. Nariman Behravesh, Chief Economist, IHS, shippers may not expect this to happen this year.

“Maybe next year or the year after, but probably not to the growth rates that we saw in the 1990’s or the 2000’s,” he added.

Speaking at the annual TPM conference in Long Beach this week, he noted that volume growth in global trade two decades ago was around 7.0%, which was twice GDP growth. Recently it’s been around 2.0%, which is less than GDP growth.

He observed that there are two kinds of factors that are driving this slowdown in trade growth: cyclical and structural.”

“Cyclical drivers of weaker trade growth account for 50% and maybe as much as 70% of the drop in global trade. Clearly weak global demand, and this long extended period of sluggish growth have contributed.  In particular, the Chinese industrial recession is very much a part of the answer. If you look at Chinese import growth in 2015, it is -13%, that tells you that the pull from China is gone – it is in reverse, which is a huge deal in terms of trade growth.”

The economist also noted that related to that is the huge drop in commodity prices. This brings value and volume implications, but will this reverse?

“It will,” he declared. “We’re not going to continue to see plunges in commodity prices; in fact, they’ve leveled off. The drag from China’s industrial recession will begin to ease, and global growth prospects next year and the year after that will improve, which will help global trade growth.”

Regarding structural growth, he said there are some negatives and there are some positives, but the negatives will not necessarily reverse.

“The first is the transition of China from an industrial economy to a service based economy. That will continue to change and evolve and as it does, China’s role in terms of global trade patterns will change and diminish in some sense – this is a long term trend,” said Behravesh.

By Patrick Burnson, Executive Editor

Sourced: logisticsmgmt