The record monthly rise in global trade volumes in June was little surprise given both the size of the falls earlier in the year and that, by this point, most countries were past the worst of their lockdowns. While we think that the jump in June marks the start of the recovery, it is likely to be slow and protracted.
- The record monthly rise in global trade volumes in June was little surprise given both the size of the falls earlier in the year and that, by this point, most countries were past the worst of their lockdowns. While we think that the jump in June marks the start of the recovery, it is likely to be slow and protracted.
- According to data released from the CPB Netherlands Bureau, world trade rose by a whopping 7.6% in June – by far the largest monthly rise on record. (See Chart 1.) But despite that, global trade volumes were still around 11% below their pre-virus levels. And in three-month year-on-year terms, trade growth edged down slightly from -11.7% to -12.5%.
- The breakdown showed large differences at the regional level. (See Chart 2.) Countries in Latin America experienced the biggest increase in exports in June. Indeed, the almost-30% m/m rise pushed exports back within a whisker of the region’s pre-virus level. In contrast, despite double-digit percentage monthly rises in exports from the US and the euro-zone, they were still well below levels seen in January.
- While trade fell by over 10% in the first half of the year, as we have argued for a while now, the damage has been much less severe than one might expect given the magnitude of the decline in GDP. (See here.) One key reason for this is that an increase in demand for COVID-related products such as medical equipment, PPE, and electronics used for working from home has supported exports. China and other emerging Asian economies have benefited the most from this boost. In Korea, for instance, computer exports were up a massive 80% y/y which boosted the headline rate by around 6.5%-pts in June.
- In advanced economies, the product breakdown showed that exports of transport goods were by far the largest drag on trade, knocking 6.1%-pts off overall growth, around half of which was due to autos and parts. (See Chart 3.) The data also indicated that stronger demand for COVID-related products boosted trade in DMs – pharmaceuticals was the only major category where exports were up on the year.
- We think that the rise in world trade in June marks the start of a slow recovery for several reasons. First, the latest hard data from the Asian early reporters showed that exports from the region continued to pick up in July – they were only 4.6% below pre-virus levels, compared to 9.3% below in June. (See Chart 4.) Admittedly, data from Korea for the first 20 days of August showed a small drop in dollar exports after recovering in June and July. (See Chart 5.) But the weakness there was probably due to flooding that occurred at the start of August, rather than a renewed slump in demand. After all, exports averaged $2bn per working day from 11th-20th August, up 65% from the first ten days of the month.
- Second, the survey data are consistent with a pick-up in world trade in the coming months. Indeed, the latest batch of flash PMIs for August point to a further increase in the new export orders component of the DM manufacturing PMI from 47.4 in July to 49.4. While we are treating the PMIs with caution at the moment (see here and here), on past form, this would be consistent with real export growth in advanced economies pulling off a remarkable rebound to positive territory in the coming months. (See Chart 6.)
- Third, financial conditions will now be offering a boost. Conditions in general have become supportive for traders to satisfy their liquidity needs, and the broad-based weakening of the US dollar will be especially helpful. Indeed, the dollar is used to price over 40% of the world’s traded goods, with the share of imports invoiced in dollars in most economies significantly higher than the share of imports from the US. (See Chart 7.) So, the 5.5% fall in the greenback on a trade-weighted basis since March will enable importers to purchase more goods for the same amount in local currency terms, boosting demand for traded goods.
- That said, the recovery will probably be slow going. Granted, Chinese exports have rebounded to levels well above those seen before the virus. (See Chart 8.) But this is reflective of the fast recovery in China which we do not expect to be replicated elsewhere. Indeed, at the global level, GDP is set to remain well below its pre-virus level this year and next, and so will world trade.
Chart 1: CPB World Trade Volumes
Chart 2: CPB Country Export Volumes (% m/m, June)
Chart 3: Percentage Point Contribution to y/y Growth Rate in DM Exports (US$ values, June)
Chart 4: Real Exports of Asian Early Reporters
Chart 5: Korea Exports (US$bn, working-day-adjusted)
Chart 6: DM Mfg. New Export Orders PMI & Real Exports
Chart 7: Imports from the US & Imports Invoiced in US Dollars as a % of Total Imports (2001-2015 averages)
Chart 8: Goods Trade ($bn seas. adj.)
Sources: Refinitiv, IHS Markit, CEIC, Intracen, Comtrade, Capital Economics
Gabriella Dickens, Assistant Economist, firstname.lastname@example.org