Download World Trade

World Trade: No Strong
Recovery in Sight Yet
Raoul Leering
Head of International Trade Analysis, ING
Amsterdam , June 2016
Summary
Causes for the recent slowdown of world trade
•
Declining value of world trade since 2014; no surprise, given the commodity price crash
•
The sluggish growth in trade volumes, however, needs explanation. We see three
causes:
1.
Slowdown of the world economy. This has a disproportionate effect on world trade,
because (cyclically sensitive) durable goods are overrepresented in trade
2.
Slower growth of greenfield FDI and trade in intermediates, indicating a slowdown in the
expansion of global value chains
3.
Increasing protectionism
2016-18: Prospects for world trade remain bleak
•
1
Trade to grow at around world GDP growth (2.3-2.9%); no acceleration, because:
1.
Low growth of the world economy means no stimulus from the economic cycle
2.
Free trade is at risk (protectionism, Brexit, TPP not ratified and TTIP uncertain)
3.
Expansion of global value chains shows no sign of acceleration
4.
Chinese import ratio keeps declining, as rebalancing of Chinese economy continues
State
Content
1. World trade: State of play
2. Causes of sluggish trade growth
3. Prospects for trade in years to come
2
Causes
Prospects
State
State of play:
Where does world trade stand?
3
Causes
Prospects
State
Causes
Prospects
Declining value of world trade in goods
World Trade: nominal and real indices (2005=100)
180
•
The decline in the value of world
trade is primarily caused by the
plunge in commodity prices,
especially the oil price crash
that started in the summer of
2014.
•
By volume (real index), world
trade declined in 1H15 and
again in 1Q16, but has, on
balance, increased somewhat
over the last couple of years.
160
140
120
100
80
60
40
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
World trade nominal index
Source: Netherlands Bureau for Policy Analyses (CPB)
4
World trade real index
Calculations: ING Global Markets Research
State
Causes
Prospects
Goods trade by volume: Positive, but weak growth
•
Growth of world trade (% change YoY)
15%
10%
•
The fifteen years running up
to the crisis
•
World GDP growth
5.1%
5%
2.8%
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
2015
1.7%
0%
•
In 2015, volumes grew only
1.7%, far behind world GDP
growth (2.8%). Including
services, trade growth is
higher, but still lagging that of
GDP
•
Worrisome is that after a
recovery in 2H15, trade
volumes started to decline
again in 1Q16: -1.7% QoQ
-5%
-10%
-15%
World Goods Trade Growth
Average Growth Goods Trade
World GDP growth
Source: Netherlands Bureau for Policy Analyses (CPB)
5
Trade volume growth is
positive, but very weak
compared to:
Calculations: ING Global Markets Research
State
Causes
Prospects
Globalisation in reverse
Worldwide goods imports as a % of GDP
27%
•
Pre-2008:
A steep rise of import ratios in
many countries
•
2008–11:
A steep decline and
subsequent recovery of
import ratios
•
Post-2011:
A decline in import ratios,
which accelerated in 2015
•
This shows that the
‘openness’ of the world
economy is actually in
reverse
26%
25%
24%
23%
22%
21%
20%
19%
18%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Source: IMF WEO & WTO
6
Calculations: ING Global Markets Research
State
Causes of the slowdown in trade
7
Causes
Prospects
State
Causes
Prospects
1. Emerging markets to blame
Average GDP and import growth (% change YoY)
8%
•
Compared to 1980-2012, the
average growth of imports in
advanced economies is much
lower.
•
However, growth of imports
still outpaces GDP growth.
•
In Emerging Markets (EMs) we
observe the contrary; trade in
goods is now growing less than
GDP.
•
This also holds for the most
recent figures (1Q16). Thus,
EMs remain the leading cause
of the decline of world trade.
7%
6%
5%
4%
3%
2%
1%
0%
1980-2012
2013-2015
Advanced economies
Import volume growth of goods
Source: IMF WEO
8
1980-2012
2013-2015
Emerging market and developing economies
GDP growth, constant prices
State
Causes
Prospects
Asian trade in lower gear
Regional contributions to world import growth
•
In 2014 and 2015, Europe and
the US showed healthy demand
for imports.
•
South America and the Middle
East have made negative
contributions to growth of
imports globally.
•
Though the contribution of Asia
was positive during 2014-15, it
has decreased steeply. In 2013,
Asia was responsible for 75% of
the growth in world trade, versus
20% in 2015.
•
During 2015 and 1Q16, emerging
Asian economies were the most
dominant factor behind the
declining volumes of world trade.
6%
5%
4%
3%
2%
1%
0%
-1%
2011
Source: WTO
9
2012
2013
2014
2015
Europe
North America
Asia
South and Central America
Middle East and others
World
State
Causes
Prospects
EMs: from lifebuoy to a drag on world GDP growth
Real GDP growth (% change YoY)
8%
•
The difference between real
GDP growth in Emerging
Markets (EMs) and Developed
Markets (DMs) has declined
sharply.
•
DMs are no longer supressing
world GDP growth. Nowadays,
EMs have taken up that role;
GDP growth rates are declining.
•
Hence, EMs are no longer the
‘lifebuoy’ of world GDP growth.
6%
4%
2%
0%
2008
2009
2010
2011
2012
2013
2014
-2%
-4%
GDP Developed Economies
Source: Netherlands Bureau for Policy Analyses (CPB)
10
GDP Emerging Economies
2015
State
Causes
Prospects
Investments in emerging Asia, especially, are curbing imports…
Investments as a % of GDP
45%
•
The decline of GDP growth in
EMs is an important reason for
the slowdown in world import
demand.
•
Especially worrisome is that
the investment ratio in
emerging Asia is declining.
40%
35%
30%
25%
20%
15%
10%
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
Source: IMF WEO
11
State
Causes
Prospects
…because imports are strongly related to investments
World growth of real imports, real investment and real GDP
(% change YoY)
15%
•
The chart shows that trade is
more closely related to
investments than to GDP.
•
This is because 70% of (nonenergy) world trade consists of
trade in durable goods. Capital
goods for investments make up
a significant part of trade in
durable goods.
•
China is one of the EMs where
imports are declining.
10%
5%
0%
1998
2000
2002
2004
2006
2008
2010
2012
2014
-5%
-10%
-15%
Real imports
Source: IMF WEO
12
Real investment
Real GDP at market exchange rates
State
Causes
Prospects
Less Chinese imports of intermediates and capital goods
Chinese import growth (% change YoY)
35%
•
Much lower growth in Chinese
demand for capital goods and
intermediates since 2010.
•
The Chinese import slowdown is
not only cyclical, because:
30%
25%
20%
•
15%
•
10%
5%
0%
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
-5%
Capital
Source: IMF WEO & UNCTAD
13
Primary intermediate
Other intermediate
A structural shift to domestic
suppliers for intermediates.
Rebalancing of the economy
away from exports and
investments, towards
consumption, meaning a shift
from the high import content
of exports and investments
towards the lower import
intensity of consumption.
(Consumption goods account
for only 5% of imports).
State
Causes
Prospects
Other emerging markets show the same pattern…
Emerging market import growth, excluding China (% change YoY)
35%
30%
25%
•
20%
15%
10%
5%
0%
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
-5%
-10%
-15%
Capital
Source: IMF WEO & UNCTAD
14
Other intermediate
Primary intermediate
2014
Imports of capital goods, in
particular, have taken an
even bigger hit in EMs other
than China.
State
Causes
Prospects
…partly due to the crisis faced by commodity exporters
Capital goods import volume index (% change YoY)
40%
•
Within these other EMs,
commodity-exporting countries
are playing a significant role in
the slowdown of import growth
of capital goods.
•
The commodity price crunch has
led to less import demand for
capital goods from oil-exporting
countries.
•
But it’s not only commodity
exporters that are importing less.
•
Other EMs, like Asian economies
outside of China, are also
importing less.
•
So, what else is going on?
30%
20%
10%
0%
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
-10%
2013
2014
-20%
Others
Source: UN Comtrade, IMF & World Bank
15
Commodity exporters
State
Causes
Prospects
2. Global value chains: Lower greenfield FDI…
35%
32%
•
Could it be that the expansion of
global value chains is slowing
down? Is offshoring losing ground
to re-shoring?
•
Diminishing greenfield FDI flows
to developing economies in 2015
seem to indicate this.
•
But, greenfield FDI is a blurred
indicator of global value chains.
Greenfield FDIs, with the purpose
of setting up new offshoring
locations to take care of part of
the production process, lead to a
lot of imports and exports of
intermediates.
30%
25%
20%
15%
10%
8%
5%
1%
0%
-5%
-4%
-10%
Source: UNCTAD
16
World
Developed
Economies
1%
8%
Developing
Economies
-4%
Transition
economies
32%
But, greenfield FDIs are also made
to sell products in the local
market. If so, these can be
substitutes for exports instead of
being a stimulus.
State
Causes
Prospects
…lagging trade in intermediate products
World imports of intermediate products and all imports (2004=100)
•
200
190
180
The worldwide slowdown in
the growth of imports of
intermediates also suggests
that the expansion of global
value chains is slowing down.
170
160
150
140
130
120
110
100
2004
2005
2006
2007
2008
Total goods import
Source: WTO
17
2009
2010
2011
2012
2013
2014
Total intermediate imports
Calculations: ING Global Markets Research
State
Causes
Prospects
China leads the way in this slowdown
Chinese imports of intermediate products and all imports
(2004=100)
350
•
Chinese import demand for
intermediates is slowing.
•
This is not only because China
is increasingly using domestic
suppliers.
•
The rebalancing of the
Chinese economy away from
exports/industry, towards
consumption/services, means
reduced imports of
intermediates.
325
300
275
250
225
200
175
150
125
100
2004
2005
2006
2007
2008
Total goods import
Source: WTO
18
2009
2010
2011
2012
2013
2014
Total intermediate imports
Calculations: ING Global Markets Research
State
Causes
Prospects
3. Trade liberalisation losing out to protectionism
Number of implemented trade measures
800
•
Another reason for the
slowdown in trade is:
Protectionism.
•
Over 500 protectionist
measures have been
implemented in 2015,
compared to just 200
liberalising trade measures.
•
This does not only hold true
for 2015. In each year since
the start of the financial crisis
in 2008, protectionist
measures have outpaced
liberalising measures.
700
600
500
400
300
200
100
0
2009
2010
Total
Source: Global Trade Alert
19
2011
2012
Discriminatory
2013
2014
Liberalising
2015
State
Causes
Prospects
Products responsible for trade fall hit by protectionism
Trade measures that are protectionist (as a % of total)
80%
70%
•
There is a clear relationship
between product groups that
contributed most to the fall in
trade in 2015 and those hit
most by protectionism.
•
Product groups (excluding
commodities) that are each
responsible for at least 1% of
the decline in trade (by
volume) from 2014 to 2015 are
hit almost twice as hard by
protectionism than the
average for manufacturing
goods.
Export taxes
60%
50%
Public
procurement
40%
30%
20%
Import
restrictions
10%
0%
All manufacturing
Source: Global Trade Alert
20
Between 0.5% share and
1% share
More than 1% share
Where is world trade heading?
Cyclical and structural drivers look weak
21
State
Causes
Prospects
Cyclical: Trade suffers from economic weakness
Low economic growth has a
disproportionate negative effect on trade
5%
4%
3%
2.3%
2%
1%
0%
-1%
-2%
ING forecasts slower 2016 GDP growth in:
• The US: 2.4% in 2015 to 1.6% in 2016
• China: 6.9% to 6.5%
• UK: 2.3% to 1.8%
• Japan: still-low growth (0.5%)
• The Eurozone hardly compensates:
1.4% to 1.6%
• Russia exerts less drag on the world
economy, but is still shrinking (-1.7%)
Investment picture looks rather bad
• Negative investment growth in the
US/UK
• Only modest recovery in the Eurozone
• Flat investment profile in Japan
• China: negative structural trend
-3%
Source: IMF & ING
22
Calculations: ING Global Markets Research
State
Causes
Structural: Unfavourable tide, but one bright spot
Many negative factors for trade:
1. Free trade at risk
2. No signs of accelerating expansion in global value chains
3. China’s shift away from investments to continue
A positive one:
• Rising commodity prices push up import values and
volumes of commodity exporters
23
Prospects
State
Causes
Prospects
1. Free trade at risk: EU under pressure
BREXIT:
• Vote to leave EU can hurt British and EU
trade and creates risk of more EU
countries leaving the EU
TPP/TTIP/Bali:
• TTIP: Little public support makes closing
any deal with the US difficult
• TPP: Positions taken by US presidential
candidates make ratification of TPP
uncertain
• Bali: 31 countries yet to ratify, before
Bali agreement can be implemented
Refugee crisis:
• Reestablishment of border controls
24
State
Causes
Prospects
2. No signs of renewed momentum for global value chains
Greenfield FDI in EMs may continue, but not accelerate, due to:
• Subdued investment activity of enterprises in developed markets
• Threat of barriers due to political instability/protectionism
25
State
Causes
Prospects
3. Chinese imports: Growth will not return to pre-crisis levels
Development of Chinese goods imports as a % of GDP
35%
30%
•
25%
20%
15%
10%
The shift away from export- and
investment-led growth in China,
towards consumption-led growth, had
already started to reduce the import
intensity far before the start of the
financial crisis. The export industry
uses many imported intermediates,
while consumption is less dependent
on imports
5%
0%
2000
2002
Source: IMF & WTO
26
2004
2006
2008
2010
2012
2014
Calculations: ING Global Markets Research
State
Causes
Prospects
A positive: Rising commodity prices stimulate imports
ING commodity price forecasts
20
70
•
ING expects the oil price to increase to
US$65/bbl in 2017, driven by a significant
reduction in the oversupply of oil and
rising demand from China and other
countries.
•
Despite a recent setback, ING estimates
that prices of metals like iron ore ,
aluminium and copper will rise further this
year and next.
•
As fuels and mining-related products
make up 15-20% of total world trade,
these price increases are good news for
the value of world trade.
•
Hence, trade, in value and in volume
terms, can increasingly benefit from rising
commodity prices, this year and next.
60
18
50
16
40
14
30
12
20
10
10
8
0
ICE Brent (US$/bbl) (RHS)
LME Cu (1000s US$/mt) (RHS)
LME Al (1000s US$/mt) (LHS)
Platinum (100s US$/oz) (LHS)
Calculations: ING Global Markets Research
27
State
Causes
Prospects
ING’s baseline expectations for world trade
1. World trade (in goods) will grow at around the world GDP growth
rate (2.3-2.9%) during 2016-18
2. Nominal trade will grow a bit faster, especially from 2017 onwards
3. But, no sign of a return to trade growth outpacing production by
any significant amount
28
State
Causes
Risks to the baseline scenario: Mainly downward
Downside risks:
• Political (Brexit, European refugee crisis, Grexit and US politics)
• Stronger slowdown of the world economy
• Return of volatility in financial markets
• Another drop in commodity prices
Upside risks:
• European growth
• Recovery in China
• Trade agreements going ahead
29
Prospects
Contact information
For further information, please contact
Raoul Leering
Head of International Trade Analysis
General Market Analysis
ING Bank
[email protected]
Telephone: +31 6 133 03 944
A special thank you to intern Marco Loonstra, who assisted in compiling this
report
30
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