Download - World Trade; No recovery in sight yet
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World Trade: No Strong Recovery in Sight Yet
Raoul Leering Head of International Trade Analysis, ING
Amsterdam , June 2016
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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 • 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
1
Summary
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Content
1. World trade: State of play
2. Causes of sluggish trade growth
3. Prospects for trade in years to come
State Causes Prospects
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3
State of play:
Where does world trade stand?
State Causes Prospects
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• 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.
4
Declining value of world trade in goods
40
60
80
100
120
140
160
180
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
World Trade: nominal and real indices (2005=100)
World trade nominal index World trade real index
Source: Netherlands Bureau for Policy Analyses (CPB) Calculations: ING Global Markets Research
State Causes Prospects
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• Trade volume growth is
positive, but very weak compared to:
• The fifteen years running up to the crisis
• World GDP growth
• 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
Goods trade by volume: Positive, but weak growth
Source: Netherlands Bureau for Policy Analyses (CPB) Calculations: ING Global Markets Research
1.7%
5.1%
2.8%
-15%
-10%
-5%
0%
5%
10%
15%
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
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03
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04
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05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
Growth of world trade (% change YoY)
World Goods Trade Growth
Average Growth Goods Trade
World GDP growth
State Causes Prospects
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• 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
18%
19%
20%
21%
22%
23%
24%
25%
26%
27%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Worldwide goods imports as a % of GDP
6
Globalisation in reverse
Source: IMF WEO & WTO Calculations: ING Global Markets Research
State Causes Prospects
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7
Causes of the slowdown in trade
State Causes Prospects
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• 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.
8
1. Emerging markets to blame
Source: IMF WEO
0%
1%
2%
3%
4%
5%
6%
7%
8%
1980-2012 2013-2015 1980-2012 2013-2015
Advanced economies Emerging market and developing economies
Average GDP and import growth (% change YoY)
Import volume growth of goods GDP growth, constant prices
State Causes Prospects
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• 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.
9
Asian trade in lower gear
Source: WTO
State Causes Prospects
-1%
0%
1%
2%
3%
4%
5%
6%
2011 2012 2013 2014 2015
Regional contributions to world import growth
Europe North America
Asia South and Central America
Middle East and others World
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• 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.
10
EMs: from lifebuoy to a drag on world GDP growth
-4%
-2%
0%
2%
4%
6%
8%
2008 2009 2010 2011 2012 2013 2014 2015
Real GDP growth (% change YoY)
GDP Developed Economies GDP Emerging Economies
Source: Netherlands Bureau for Policy Analyses (CPB)
State Causes Prospects
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• 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.
11
Investments in emerging Asia, especially, are curbing imports…
10%
15%
20%
25%
30%
35%
40%
45%
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
Investments as a % of GDP
Source: IMF WEO
State Causes Prospects
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• The chart shows that trade is
more closely related to investments than to GDP.
• This is because 70% of (non-energy) 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.
12
…because imports are strongly related to investments
-15%
-10%
-5%
0%
5%
10%
15%
1998 2000 2002 2004 2006 2008 2010 2012 2014
World growth of real imports, real investment and real GDP
(% change YoY)
Real imports Real investment Real GDP at market exchange rates
Source: IMF WEO
State Causes Prospects
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• Much lower growth in Chinese
demand for capital goods and intermediates since 2010.
• The Chinese import slowdown is not only cyclical, because:
• 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).
13
Less Chinese imports of intermediates and capital goods
-5%
0%
5%
10%
15%
20%
25%
30%
35%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Chinese import growth (% change YoY)
Capital Primary intermediate Other intermediate
Source: IMF WEO & UNCTAD
State Causes Prospects
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• Imports of capital goods, in
particular, have taken an
even bigger hit in EMs other than China.
14
Other emerging markets show the same pattern…
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Emerging market import growth, excluding China (% change YoY)
Capital Other intermediate Primary intermediate
Source: IMF WEO & UNCTAD
State Causes Prospects
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• 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?
15
…partly due to the crisis faced by commodity exporters
Source: UN Comtrade, IMF & World Bank
-20%
-10%
0%
10%
20%
30%
40%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Capital goods import volume index (% change YoY)
Others Commodity exporters
State Causes Prospects
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• 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.
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.
16
2. Global value chains: Lower greenfield FDI…
World Developed
Economies
Developing
Economies
Transition
economies
1% 8% -4% 32%
1%
8%
-4%
32%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
Source: UNCTAD
State Causes Prospects
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• The worldwide slowdown in
the growth of imports of intermediates also suggests
that the expansion of global
value chains is slowing down.
17
…lagging trade in intermediate products
Source: WTO Calculations: ING Global Markets Research
State Causes Prospects
100
110
120
130
140
150
160
170
180
190
200
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
World imports of intermediate products and all imports (2004=100)
Total goods import Total intermediate imports
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• 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.
18
China leads the way in this slowdown
Source: WTO Calculations: ING Global Markets Research
State Causes Prospects
100
125
150
175
200
225
250
275
300
325
350
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Chinese imports of intermediate products and all imports
(2004=100)
Total goods import Total intermediate imports
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• 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.
19
3. Trade liberalisation losing out to protectionism
0
100
200
300
400
500
600
700
800
2009 2010 2011 2012 2013 2014 2015
Number of implemented trade measures
Total Discriminatory Liberalising
Source: Global Trade Alert
State Causes Prospects
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• 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.
20
Products responsible for trade fall hit by protectionism
0%
10%
20%
30%
40%
50%
60%
70%
80%
All manufacturing Between 0.5% share and
1% share
More than 1% share
Trade measures that are protectionist (as a % of total)
Export taxes
Public
procurement
Import
restrictions
Source: Global Trade Alert
State Causes Prospects
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21
Where is world trade heading? Cyclical and structural drivers look weak
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Low economic growth has a
disproportionate negative effect on trade 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
22
Cyclical: Trade suffers from economic weakness
2.3%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
Source: IMF & ING Calculations: ING Global Markets Research
State Causes Prospects
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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
Structural: Unfavourable tide, but one bright spot
State Causes Prospects
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24
1. Free trade at risk: EU under pressure
State Causes Prospects
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
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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
2. No signs of renewed momentum for global value chains
State Causes Prospects
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0%
5%
10%
15%
20%
25%
30%
35%
2000 2002 2004 2006 2008 2010 2012 2014
Development of Chinese goods imports as a % of GDP
26
3. Chinese imports: Growth will not return to pre-crisis levels
Source: IMF & WTO Calculations: ING Global Markets Research
State Causes Prospects
• 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
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• ING expects the oil price to increase to
US$65/bbl in 2017, driven by a significant reduction in the oversupply of oil and
rising demand from China and other
countries.
• Despite a recent setback, ING estimates
that prices of metals like iron ore , aluminium and copper will rise further this
year and next.
• As fuels and mining-related products
make up 15-20% of total world trade,
these price increases are good news for the value of world trade.
• Hence, trade, in value and in volume terms, can increasingly benefit from rising
commodity prices, this year and next.
27
A positive: Rising commodity prices stimulate imports
Calculations: ING Global Markets Research
State Causes Prospects
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60
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ING commodity price forecasts
ICE Brent (US$/bbl) (RHS) LME Cu (1000s US$/mt) (RHS)
LME Al (1000s US$/mt) (LHS) Platinum (100s US$/oz) (LHS)
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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
ING’s baseline expectations for world trade
State Causes Prospects
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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
Risks to the baseline scenario: Mainly downward
State Causes Prospects
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ING Indigo
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ING Sky
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ING Fuchsia
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ING Lime
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ING Leaf
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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
Contact information
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Disclosures
31
ANALYST CERTIFICATION
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ING Orange
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ING Light Grey
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ING Indigo
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ING Sky
RGB= 96, 166, 218
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ING Fuchsia
RGB= 171, 0, 102
ING Lime
RGB= 208, 217, 60
ING Leaf
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ING Mid Grey
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32
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