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The down trend in global trade since the financial crisis reached a bottom in mid-2016, but a recovery in 2017 is now firmly underway. Global trade growth averaged 1.4% in 2016 then rose to 4.1% year on year in the first half of 2017 with early indications of continued strong growth in recent months. We examine the acceleration in global trade and find that it has been most noticeable in imports to emerging markets (EMs), particularly Asian EMs, although import growth in the US has also risen significantly. In terms of exports, the global trade pickup has been more broad-based but still focused in EM Asia and the US.
Global trade was the lowest in 2016 since the time of the financial crisis as a number of drags coincided (see our September 2016 commentary, Global trade growth falls to slowest rate since the financial crisis). First, global real GDP growth slowed to its lowest level since the financial crisis with a particularly sharp slowdown in advanced economies (AEs). Second, slower growth was accompanied by weak investment (notably in the US and China) which tends to involve a higher proportion of trade than other forms of growth such as consumption. Third, trade liberalisation slowed with a rise in protectionist measures and delays with new major trade agreements. Finally, low commodity prices led to lower investment and reduced incomes in commodity exporters.
However, in 2017, many of the 2016 drags on trade have reversed. Global GDP growth has accelerated, investment in the US and China has recovered and commodity prices have risen (see our May 2017 commentary, Will global trade finally recover in 2017?). The latest data confirms that the recovery in global trade has taken hold in the first half of 2017 with both import and export volumes growing by 4% or more compared with 1.4% in 2016.
First, looking at global import volumes, growth was concentrated in EMs, which account for just under 40% of global trade. The largest contributor was imports to EM Asia, with China dominating. Real growth in Chinese imports has risen from 3.6% on average in 2016 to 12.5% in the first half of 2017. This is probably a result of slightly higher real GDP growth in China, a pickup in investment and also to provide inputs for Chinese exports. The US was also an important contributor to growth in world imports, with real import growth of 4.1% in H1 2017 compared with 0.7% in 2016. A turnaround in investment and higher overall GDP growth have boosted imports to the US. Latin America was the other EM region to perform well in terms of higher import growth in the first half of 2017 as Brazil emerged from a deep recession in 2016.
Second, in terms of exports, the pickup in global trade growth was spread across both advanced economies and EMs. EM Asia and, again, mainly China, were responsible for most of the acceleration in global export growth. EM Asia plays the role of the world’s manufacturing hub and the pickup in global growth has benefited the region more than others. Chinese exports grew 9.0% in the first half of 2017 compared with growth of 2.6% in 2016. Exports from the US were also an important contributor to higher global export growth. After contracting 0.2% in 2016, exports volumes have grown 4.9% year on year in the first half of 2017. US exports have been boosted by a weaker US dollar. After appreciating 3.6% during 2016 on a trade-weighted basis, the USD weakened 6.4% during the first half of 2017. Other strong performances in the first half of 2017 came from Japan, an export-oriented economy, with growth of 6.5% and EM Central and Eastern Europe with growth of 10.2%.
After a series of weak years, global trade seems to have turned a corner in 2017 in line with the global economic recovery. Although global trade data points to positive spillovers across regions and economies, the benefits are concentrated in the largest trading regions and nations: EM Asia and China, as the world’s manufacturing hub, and the US.