Given that the lockdowns were implemented in most countries in March, the 1.4% m/m contraction in world trade volumes seems fairly muted. However, the global number was flattered by a sharp rebound in China as shutdowns there eased. And more timely data suggest that the worst is yet to come.
- Given that the lockdowns were implemented in most countries in March, the 1.4% m/m contraction in world trade volumes seems fairly muted. However, the global number was flattered by a sharp rebound in China as shutdowns there eased. And more timely data suggest that the worst is yet to come.
- The CPB Netherlands trade data showed that the coronavirus had weighed on global trade in March, with trade volumes down by another 1.4% following declines in January and February. (See Chart 1.) In general, advanced economies were hit much harder than EMs. (See Chart 2.) The euro-zone performed particularly badly with exports down by 7.7%, but the decline in real exports from the US was also the largest since the financial crisis. Meanwhile, China saw a sharp rebound in trade as containment measures there were eased, and factories reopened.
- Taken at face value, it was surprising that the global number was not worse given that lockdown measures had started to bite across much of the world in March. But there are several reasons why the worst is yet to come. For one thing, the fall in global trade in March would have been a lot worse had it not been for the 12% rise in exports from China, which contributed 1.4%-pts to the global number. (See Chart 3.) Given that data from China for April showed that the rebound had slowed significantly, global trade volumes will not have received the same sort of boost last month.
- What’s more, the latest evidence suggests that the damage to world trade from the coronavirus will intensify. Indeed, data from the early-reporting East Asian economies showed that real trade fell by 3% on the month in April, taking the year-on-year growth rate down to -2.6% – the worst rate since 2009. (See Chart 4.) Out of the early reporters, Japan fared especially badly, with real exports down by over 15% m/m. There was even worse news elsewhere in Asia – the US dollar value of Indian exports plunged by a staggering 60% y/y last month. (See here.)
- Meanwhile, despite lockdowns easing across much of the euro-zone and the US in May, their demand for foreign products appears to have remained weak in May. Timely data from Korea showed that exports from this highly globalised economy fell by 30% y/y in working-day adjusted US$ terms in the first 20 days of the month.
- Business surveys also point to a sharp decline in world trade. Despite edging up in May, the export orders component of the DM manufacturing PMI is consistent with a 15% y/y plunge in advanced economy exports. (See Chart 5.) And the picture may be even bleaker than the surveys suggest. After all, the qualitative nature of the questions mean they may not be great at capturing large falls in orders. (See here.)
- On the basis of past form, our forecast for a 6% contraction in global GDP this year is, at face value, consistent with an almost-40% fall in world goods trade. (See Chart 6.) But given that the services sector has borne the brunt of the coronavirus lockdown measures, we doubt that goods trade will fall as far as they have done in the past relative to the decline in overall output.
- Once lockdown measures start to ease, evidence from China suggests that trade volumes could rebound fairly quickly. After surging by 24% m/m in March, exports rose by a further 5% in April. And in seasonally adjusted terms, outbound shipments were back to their pre-virus level. (See Chart 7.)
- While we expect global trade to rebound in the second half of the year, the risks lie to the downside. After all, while the new export orders sub-indices from May’s Flash PMIs rose from April’s record lows, they remained at low levels, suggesting that any recovery in activity will be gradual. (See Chart 8.) What’s more, the reignition of tensions between the US and China points to a risk of renewed tariffs or other measures to limit trade between the two major economies. Such tensions could be an additional headwind to trade further ahead.
Chart 1: CPB World Trade Volumes
Chart 2: DM & EM Export Volumes (% y/y)
Chart 3: Percentage-point Contribution to M/M Growth in Global Export Volumes
Chart 4: Early-Reporting Asian Real Trade (% y/y)
Chart 5: Global Mfg. PMI Export Orders & Real Exports
Chart 6: World Trade Volumes & GDP (% y/y)
Chart 7: China Goods Trade ($bn, seas. adj.)
Chart 8: Flash PMIs New Export Orders Indices
Sources: Refinitiv, IHS Markit, CEIC, Capital Economics
Gabriella Dickens, Assistant Economist, email@example.com