World trade surpasses pre-virus level - Capital Economics
Global Economics

World trade surpasses pre-virus level

Global Trade Monitor
Written by Kieran Tompkins

Another increase in world trade in November meant that it exceeded its pre-pandemic level, though exports remained depressed in the US and emerging Europe. Since November, container freight rates have surged, reflecting shipping supply struggling to cope with demand. While these disruptions may soon begin to weigh on trade flows, there is limited evidence of any impact so far.

  • Another increase in world trade in November meant that it exceeded its pre-pandemic level, though exports remained depressed in the US and emerging Europe. Since November, container freight rates have surged, reflecting shipping supply struggling to cope with demand. While these disruptions may soon begin to weigh on trade flows, there is limited evidence of any impact so far.
  • According to data released yesterday from the CPB Netherlands Bureau, world trade volumes increased by 2.1% m/m in November and have returned to growth in year-on-year terms. (See Chart 1.) The increase means that the real value of world trade has now risen by 22% since its trough in May and is now about 1% higher than its pre-virus peak in December 2019.
  • The regional breakdown for November revealed that the largest increases in real exports were in Asia. (See Chart 2.) The outperformance of Asia’s export sector is a continuation of what we have witnessed since the onset of the pandemic. They have been the principal beneficiaries of consumer demand shifting away from spending on domestic services and tourism towards goods for working from home and home improvement. Indeed, real exports in Asian economies were considerably above pre-virus levels in November, while they were still 5-10% below in the US and emerging Europe. (See Chart 3.)
  • Survey data suggest that trade has continued to perform well. We aren’t able to read too much into what precise level of export growth is implied by the PMI surveys, because they have significantly overstated the strength of the export recovery for some time now. (See Chart 4.) Nonetheless, January’s rise in the new export orders component of the developed markets manufacturing PMI, from an already strong level, is at least consistent with some measure of improvement in January.
  • At the same time, though, the PMIs suggest that the supply of goods is struggling to keep up with rising demand. As we noted last week, the survey balance for suppliers’ delivery times has fallen sharply in recent months, which indicates that goods – intermediate inputs for production, as well as final consumer and capital goods – are taking longer to be delivered. (See Chart 5.)
  • Reports of delivery problems in the business surveys have coincided with steep increases in the cost of container shipping since November. (See Chart 6.) Freight rates have risen the most for routes starting in China or east Asia, which makes sense given that it is their exports for which demand is greatest.
  • There have been some suggestions that part of the problem lies in virus-related staff absenteeism and social distancing regulations restricting ports’ capacity to process cargo. As of November, there was little evidence of this playing a major role in pushing up freight rates. Indeed, the RWI container throughput index – a measure of the volume of freight traffic through the world’s major ports – was up by 6.3% on the year. So, in November at least – which is when freight rates started to rise – it seems that sheer demand for ports’ services was the real problem. Since then, port capacity may have become more of an issue.
  • The levels of congestion at ports so far in January have been way higher than they were during the first two weeks of 2020, particularly in the US. (See Chart 7.) Consequently, turnaround times – the difference between the date of departure and date of arrival of a vessel – have increased. In addition to disrupting the just-in-time delivery of goods, port congestion threatens to dent demand for exports if shipping costs remain elevated. And airlines will hardly be able to pick up the slack, given that passenger planes – which carry most of the world’s air freight – are still running slim services due to limited demand for travel.
  • So far, there doesn’t appear to have been a hit to export demand. Not only have export orders risen in advanced economies, but Korean exports for the first 20 days of January reveal that actual exports have held up well. (See Chart 8.) However, it is still early days. The problems afflicting the world’s shipping industry may come to bite in the coming months, and it is a risk that we will be monitoring closely.

Chart 1: Global Real Trade

Chart 2: Country/Region Real Exports
(% m/m, November)

Chart 3: Country/Region Real Exports
(Dec. 2019 = 100)

Chart 4: DM Mfg. PMI Export Orders & Real Exports

Chart 5: Advanced Economy Mfg. PMI:
Suppliers’ Delivery Times Index

Chart 6: Freightos Baltic Container Freight Rate Indices
(1st January 2020 = 100)

Chart 7: Ratio of Congestion at Ports
(First two weeks of Jan-21 Vs. Jan-20, TEU)

Chart 8: South Korea Exports (US$bn, SWDA)

Sources: Refinitiv, IHS Markit, Capital Economics


Kieran Tompkins, Assistant Economist, kieran.tompkins@capitaleconomics.com
Simon MacAdam, Senior Global Economist, simon.macadam@capitaleconomics.com