Predictions for International Trade Post 2009

7/29/2019 Predictions for International Trade Post 2009

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Predictions for International Trade post 2009 / 2011? (Kapil - 3 pages)

-Can it happen again?

- What can be done to prevent it?- What is being done?

Prospects for trade

The outlook for global trade

International trade has been volatile during the current recovery, reflecting the wider

inventory cycle in global industrial production (see Main text and Industrial Production

annex). The recovery in trade has been dominated by strong import demand from

developing countries, which has accounted for more than half of the increase in globalimports. As the recovery matures, support for trade is shifting from temporary factors

(government stimulus and re-stocking of inventories) to more sustainable drivers, notably

a rebound in private sector spending on capital goods and consumer durables. Lookingforward, world trade is expected to continue expanding at close to 8 percent annual pace,

above average in historical context.

Trade volumes are surging again. After a blistering pace of growth in the first half of

2010, global trade growth ground to a halt in the third quarter, only to pick-up againstrongly in the fourth quarter. By March 2011 (latest data), global merchandise trade

volumes were expanding at a 30 percent annualized rate (3m/3m, saar), the fastest pace in

over a decade.

The rapid pace of trade growth partly reflects the depth of the decline observed during therecession. Despite faster growth rates, trade volumes regained pre-crisis peak levels 32

months after the crisis, something achieved in only 16 months following the previous

major slump in world trade in 2001. As of March 2011, global trade was 8.9 percentabove its pre-crisis peak, compared with 10.6 percent higher at the same stage in the

previous recovery. And in spite of recovery, global trade volumes remain below trend

levels (the level of trade would have been if the crisis did not occur and trade grew at itspre-boom average), though developing countries have regained their trend levels.

Developing country demand is at the heart of the recovery in global trade. Importdemand from developing countries was responsible for more than half of the growth of

global trade during the first half of 2010, and again during the fourth quarter of 2010 andthe first quarter of 2011. Like other regions (with the exception of the United States)

developing countries support petered out in Q3-2010, but then rose strongly in the fourth

quarter (while U.S. imports declined).


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For the first quarter of 2011, developing countries accounted for nearly 50 percent (of

which Chinas contribution alone was 25 percentage points) of the increase in global

import demand.

Developing country export performance has shown considerable heterogeneity.

Trade volume growth in Asia has been extremely rapid. Buoyed by strong growth inPakistan and India, the annualized pace of export growth in South Asia reached a record

81.7 percent (3m/3m, saar) in February 2011 and moderated to 74.9 percent in March2011. Spurred by strong performance in China, export volumes in East Asia and the

Pacific expanded at a 64.0 percent annualized pace in the 3 months to January 2011 and

moderating to 45 percent in March 2011. Strong exports in Russia drove volume growthin Europe and Central Asia to an eight month peak of 15.5 percent (3m/3m saar) by

March 2011. And reflecting exchange rate appreciation, export growth in the Latin

America and Caribbean region lags other developing regions, having expanded at a 12.2percent annualized rate in the three months ending March 2011.

The recovery in the dollar value of exports is less advanced than that of volumes.Notwithstanding the sharp rise in the price of commodities in recent months, the dollar

value of exports has not recovered as far as volumes, because many prices remain belowtheir pre-crisis peaks of 2008. As of January 2011, global exports were 6.3 percent above

their pre-crisis peak in volume terms, but remained 5.7 percent below earlier highs in

dollar terms. Nevertheless, price developments have favored commodity exporters, inparticular oil. metals and mineral exporters. For example, the terms of trade improvement

for oil exporters in Europe and Central Asia amounted to about 1.8 percent of GDP,

compared with a deterioration of 1.1 percent for oil importers in the same region.

World trade growth is on more solid footing. Capital goods exports have continued to

strengthen as the recovery matures, a sign of the increasingly self-sustaining nature of therecovery. During the recession, capital goods imports fell by more than imports of

consumer durables and agricultural products (although less than oil imports), as fallingdemand and increasing uncertainty led businesses to cut investment and run down stocks.

During the initial phases of the recovery, growth in capital goods imports was driven by

massive government stimulus programs (most of which had a heavy infrastructure

component) as well as a need for businesses to replenish their stocks. Since that time,these temporary factors have waned, and imports of capital goods by businesses surged in

the fourth quarter of 2010. In the United States, for example, business spending on

equipment and software rose at a 7.7 percent annualized pace in the fourth quarter although it eased to just 1.8 percent growth in the first quarter of 2011.

Recently, slowly improving labor market conditions in high income countries have

boosted consumer goods imports, with trade in these goods exceeding that of capital

goods. Consumer goods imports are now 4.6 percent higher than their pre-crisis peaklevels, while capital goods imports remain 11.5 percent below pre-crisis peak levels,

partly reflecting the much deeper trough they experienced (capital good demand declined

35 percent during the crisis).


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The global recovery also is becoming more broadly based. High-income country

exports are now growing rapidly, though, consistent with lower potential growth rates,

not as quickly as among developing countries. By March 2011 export volumes for high-income countries were increasing at a 28.1 percent (3m/3m, saar) rate, up from the 2.7

percent (3m/3m, saar) in July 2010. In contrast, developing countries export volumes

advanced at 33.4 percent (3m/3m, saar) in March 2011, compared to a decline of 4.6percent (3m/3m, saar) in September 2010.

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there is a net redistribution of wealth away from the rapid-growth economies a processaccelerated by the financial downturn and the economic recession that it has caused.

Companies from those rapid-growth markets are now challenging the giants of the

Fortune and Forbes lists.

World trade has recovered strongly following the global financial crisis. But rather than a

return to business as usual, we are now seeing new patterns of international trade emerge.

Businesses will need to adjust their strategies to reflect the changing patterns of worldtrade that are developing and are poised to intensify over the next decade.

Risks: Prospects for the global economy have been buffeted by asuccession of blows over the past six months: sharply rising oil andcommodity prices, supply chain disruption triggered by the disastersin Japan, and debt crises in both the Eurozone and the US. In recent

weeks, financial markets have caught up with the global gloom andconditions have deteriorated sharply. From their peak in early May,global stocks have now fallen by more than 20% unnerved byweak data, the Eurozone sovereign debt crisis and the downgradeof the USs AAA credit rating.

The risk of even worse outcomes, including renewed recession, is significant. The

latest round of financial distress can only further weaken consumer and business

confidence already at low levels making the global growth and trade outlook

even more

uncertain. We judge there are three key risks to the outlook: Renewed sovereign debt

crisis in the Eurozone. Lack of confidence in the creditworthiness of Eurozone

countries triggers further sovereign defaults, rises in borrowing costs and a recessionin the euro area. This would produce a new wave of loan losses for global banks,

leading to tighter credit conditions.

US recession. Stock markets tumble with a slump in household spending and businessinvestment. Political deadlock limits the ability of fiscal policy to respond, although a thirdround ofquantitative easing by the Federal Reserve helps to support growth in the US while producingfurther capital inflows into emerging markets.


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Hard landing in China. Weak trade and a slump in commercial property triggers bankingsector stress. Investment falls while the banking sector is recapitalized. The Asian supply chainis affectedas the domestic growth engine stalls.

Even before the recent global turmoil, the pace of growth inemerging markets was slowing, reducing risks from rising inflation

in these economies. With global economic activity subdued andequity markets weak, such risks are likely to fall yet further; indeed,monetary policy in China may well shift towards supporting growth.However, inflation is proving more persistent in India.In the longer term, high inflation in emerging markets, especiallyif driven by a push for higher wages in the more developed cities inChina and other parts of Asia, has the potential to change the mapof global trade flows. Higher wage inflation in China and India wouldopen up opportunities for other emerging markets in Asia andAfrica, as low-cost producers.

Introduction : Although global trade collapsed during the financial crisis, it hassince bounced back strongly, led by trade among emerging markets.But what remains unclear is whether the key trends of the past10 years can be expected to extend into the coming decade, or

whether the global financial crisis has changed the dynamic of theglobal economy, resulting in new patterns of international trade.

continued from above :Booming income growth in

emerging markets: new sources of demand: By contrast, growth in the advancedeconomies will be weigheddown by: Significant economic adjustments, with a shift away fromdependence on the financial sector in the aftermath of the globalfinancial crisis Fiscal tightening, as governments seek to put their finances ontoa sustainable long-term path Deleveraging in the private sector, as households and businessespay off debt Aging populations, meaning that labor forces will begin to shrink,while increased demand for health and social care placesadditional strain on public finances and private consumption alikeWe expect overall GDP growth in rapid-growth markets of around6% per year to 2015, gradually slowing toward 5% by 2020.By contrast, growth in the advanced economies is not expectedto exceed 3% in the near term, with a decline to 2% by 2020.

Given such divergent prospects, the contribution of therapid-growth markets to global GDP is set to rise significantly.Measured at current market exchange rates, the global GDPshare of these markets is set to increase from around 34% in 2010to 48% by 2020. Chinas share alone is forecast to surge from 9%to nearly 20% over this period. These gains will be at the expense

of the advanced economies. The share of global GDP accountedfor by the United States is forecast to fall from 23% to 21%, whilethe share of the Eurozone will decline from 20% to 15%.

Where are economic prospects brightest?Asia is increasingly seen asthe region that will dominate world trade by 2020. nearly half of Asia-based companiesexpecting to export morethan 60% of their output in five years time compared with fewer


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than a fifth of companies in the Americas. A key result is that India and China will drive thecontinued riseof the rapid-growth markets and, together, these economies willbecome more important to global trade than the US and Eurozone .In Latin America, plentifulnatural resources and strong FDIinflows will enable improvements in productivity and infrastructureto support potential growth. Large populations and the rapid

accumulation of wealth, particularly in Brazil, will also supportthe growth of domestic demand within this region.However, there is also a new wave of markets appearing that willpresent fresh trade opportunities. Africa will capitalize on itsplentiful and expanding labor force, abundant natural resources,and a more stable political outlook in some countries. Stronginvestment by other rapid-growth markets, and China in particular,may facilitate the strong growth that Africa needs, finallybringing about the rise of the continent

One of the most important factors powering the developmentof global supply chains over the past two decades has been theproliferation of regional trade agreements, such as ASEAN in 1992and NAFTA in 1994, together with several EU enlargements andthe creation of the single currency in the Eurozone in 1999. This has led to a significant

lowering of trade barriers within regions, facilitating the growth ofregional trade and the emergence of regional hubs. Lower trade barriers, along with advancesin global transportationand communications technology, make it increasingly viable fordifferent stages of production to take place in separate locations.This allows companies to seek out the lowest-cost provider forcomponents, regardless of location.

2012 visions patterns of trade

Regional trade expansion will outpace global growth. Over the next 10 years, Asia will continue to be the mostdynamic region, with the fastest growth of trade in goodsoccurring within the region itself.

Europe is the developed region that is expected to improve its tradeposition with China the most, with the increase in exports to Chinaoutpacing the increase in trade flows in the opposite direction. India and China will be extremely dynamic in penetrating newmarkets, particularly in sub-Saharan Africa and MENA. While the US share of world exports fell significantly over the pastdecade, this trend will likely be reversed over the next 10 years,as the US capitalizes on its strength in exporting to Asia. Europesshare of global exports will decline, from 38% in 2010 to 34%in 2020. Trade in services is likely to enjoy rapid-growth over the next10 years, with Asia leading the way. By 2020, the total flowof services from Europe to Asia Pacific (excluding Japan)will be larger than to North America.

Patterns of trade will continue to shift: Global trade was dominated by theadvanced nations at thestart of the 1990s, which together accounted for around 80% ofglobal trade in merchandise exports. But the share of the advancedeconomies has since declined markedly, with the recent financialcrisis and global recession compounding that downward trend; by2010, the advanced economies accounted for a little over 60% ofglobal merchandise exports. We estimate that the continuing shifttoward global outsourcing of production, as well as the growth ofregional supply chains to serve the expansion in final demand from


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rapid-growth markets, will further compress the share of theadvanced economies to around 55% by 2020.forecasts for global trade growth are that Asia will continue to be the mostdynamic region for trade, with the fastest growth of merchandiseexports occurring within the region itself. More specifically, it will beChina and India that lead this expansion. Indeed, our bilateral tradeforecasts show the fastest-growing trade route will be between these

two economies, with Indian exports to China growing at an averageannual rate of almost 22%, while flows in the opposite directionexpand at an average annual rate of 18.5%. We expect China and Indiaalone to account for just under one-fifth of global trade flows by 2020.It is important to note that the economic dynamism of Asia ispresenting exporters from the developed nations with a host ofnew opportunities. Our projections show that two of the mostrapidly growing trade routes will be US exports to China and India,which we see growing at an average annual rate of almost 16%.So while the US share of world exports fell significantly over thepast decade, our forecasts imply that this trend will be reversedover the next 10 years as the US capitalizes on its strength inexporting to Asia. Europes share of global exports will also declinefrom 38% in 2010 to 34% in 2020.


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Despite the introduction of various protectionist measuresduring and as a result of the global financial crisis,world trade recovered more quickly than initially expected.

Increased demand for imports from developingcountries significantly contributed to the rapid recoveryof trade.

Although as a result of the global financial crisis, an array of trademeasures has been introduced, their number is still considerablysmaller than it used to be in the course of the Great Depression. Inthe 1930s, countries used trade barriers to seal off their marketsso tightly that world trade shrunk by two-thirds within just afew years. One of the most important insights from this era ishow disastrous protectionism is for the revival of world trade.For this reason, one of the main motivations for the multilateraltrade negotiations and the accord on the General Agreement on

Tariffs and Trade (GATT), the predecessor of the WTO, was theavoidance of trade wars. The existence of the WTO, as well asthe agreements in the G20 framework, have prevented a protectionistrace. But the WTO has not been able to prevent new,subtle types of protectionism (murky protectionism).

Developing countries as the motor of world trade

he prospects: future risksEven if exports from developing countries have rebounded and theextent of protective measures has not yet spun out of control,there is ample reason to continue to carefully monitor the futuredevelopment of international trade policy. On the one hand, the

industrialized countries demand for exports from developingcountries could drop again. If, for instance, the global economicsituation should deteriorate once more, the demandfor exports from developing countries would slump again.

This danger exists in light of the current debt crises and be-cause the financialmarkets in some industrialized countriesare fragile and their growth rates are still lowwhich is whydeveloping countries should strengthen regional trade anddiversify their export partners


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The danger of protectionism warrants the additional strengtheningof multilateral trade rules

Looking to the future, there are therefore grounds for increasedvigilance with respect to protectionism measures. This necessitatesthe improvement of monitoring and control of protectionist

measures

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Predictions for International Trade Post 2009