Has the global trade recession already begun?

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Economists worry about whether we are facing a big or small global recession, and whether we will face one sooner or later, it is worth keeping in mind that trade is already showing signs of deep strain. As a result, risk appetite towards emerging economies could be shaken. The annual growth rate of global import volumes turned negative late last year, remained negative in early 2023, according to Citi data, and there is little reason to think things will improve. As long as that is true, it will be the open, trade-dependent economies, especially in the developing world, that will be hardest hit. There are three main reasons why trade growth seems so low these days. The first is that we are simply suffering from a trade hangover after a Covid-era surge. This increase can largely be attributed to the different economic policy responses adopted in the pandemic. While the US and other liberal governments were keen to use fiscal transfers to bolster citizens' purchasing power, China's approach was more about getting workers back into factories.

In other words, China aimed to boost supply while its trading partners boosted demand. The result was an acceleration in trade growth, the likes of which we have not seen since the economic recovery Job Function Email Database that followed the 2008 financial crisis. A second reason for the decline in trade is the evident shift in spending, especially in advanced economies, from goods to services. There are only so many new televisions and computers one can buy in a short amount of time, and services are less commercialized. Third, trade growth is undermined by the nature of China's economic recovery. Given that this is essentially a “no-stimulus” recovery so far, much of the increase in officially funded spending in China today is on services, rather than the investment spending that tends to generate an import bill. much older. And because confidence is so weak in China, what is called “sale spending”—or more prosaically, bargain hunting—is widespread among Chinese households.



Without “big bazooka” stimulus from Beijing, this is unlikely to change. Why don't things get better? A couple of factors are worth mentioning. The first is the deterioration in the outlook for global demand. It looks like global economic growth this year will be around 2.3 percent, and next year will almost certainly be weaker than this one, not least because the big central banks are, in effect, trying to induce a slowdown. to regain control over inflation. A slowdown in growth will certainly create a more hostile environment for trade, and it's worth noting just how bad the global demand environment we're entering is. The last time the world saw two consecutive years of growth below 2.5 percent was in the wake of the financial crisis. Another reason it is not easy to be optimistic about trade is simply that we are in a world that is clearly beyond “peak globalization,” a fact that has been putting downward pressure on global trade growth for more than a decade. decade. In the early 1980s, global exports were equivalent to 15 percent of global gross domestic product, according to IMF data.