World Trade in 2009 and 2010

Report submitted to the AIECE Autumn General Meeting

Brussels, 4th-5th November 2009

By Alain Henriot

- 2

1. Overview of the world economy and general assumptions

2. Imports and domestic demand

3. Exports and price competitiveness

4. Trade balances

• Content

- 3

• Financial and raw materials markets have given an early sign of the rebound

Domestic Market Capitalization (USD billions)

2002 2003 2004 2005 2006 2007 2008 200920000

30000

40000

50000

60000

- 4

• Raw material and energy prices have already strongly recovered

BrentU.S. dollars barrel

2002 2003 2004 2005 2006 2007 2008 200918

140

80

60

40

30

100

Industrial raw materials pricesJanuary 1988=100 (in dollar terms)

2002 2003 2004 2005 2006 2007 2008 200960

100

140

180

220

80

120

- 5

• World economy fell into recession in 2008Q4 and 2009Q1 before registering a positive growth in 2009Q2, which should have been strengthened in 2009Q3

© Coe-Rexecode

%

2002 2003 2004 2005 2006 2007 2008 2009 2010

0

-8

-6

-4

-2

0

2

4

6

8

y-o-y, %quarter-on-quarter, %

- 6

• World industrial production back to previous trend (but a huge gap in terms of level)

2005=100

2002 2003 2004 2005 2006 2007 2008 200985

90

95

100

105

110

115

- 7

• Most recent figures show a pick up in world trade during last summer

y-o-y, %

J F M A M J J A S O N D J F M A M J J A S O2008 2009

0

-20

-15

-10

-5

0

5

10

CPBCoe-Rexecode

2005=100

J F M A M J J A S O N D J F M A M J J A S O2008 2009

90

100

110

120

130

CPBCoe-Rexecode

* (Sept. est.)

- 8

• However, the use of « soft » data (here world PMI export order books) can be a bit misleading in the current context regarding the measure of the intensity of the rebound

y-o-y, %

2002 2003 2004 2005 2006 2007 2008 2009 2010

0

-20

-10

0

10

20

20

33

45

58

70

World trade (volume - LHS)World export order books PMI (RHS)

- 9

• The gap between the current level of world trade and the pre-crisis level remains huge…

y-o-y, %

909192939495969798990001020304050607080910

0

-20

-10

0

10

20

CPBCoe-Rexecode

2005=100

909192939495969798990001020304050607080910

20

40

60

80

100

120

140

CPBCoe-rexecode

- 10

• … the consequence of an historical drop in trade flows

annual percentage change

1929 1939 1949 1959 1969 1979 1989 1999 2009

0

-30

-20

-10

0

10

20

30

40

World trade: an historical perspective

- 11

• World trade forecast: a strong rebound followed by a moderate growth (+7.4% in 2010 after -13.5% in 2009)

2005=100

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

00

20

40

60

80

100

120

140Table 1. - World trade: indicative quarterly profile

2005 = 100 YoY %

2008 120,0 2009 103,8 -13,5 2010 111,5 7,4 QoQ % 2008 Q1 122,9 2008 Q2 121,8 -0,9 2008 Q3 121,0 -0,6 2008 Q4 114,2 -5,6 2009 Q1 102,2 -10,5 2009 Q2 100,5 -1,7 2009 Q3 105,1 4,6 2009 Q4 107,4 2,2 2010 Q1 109,0 1,5 2010 Q2 110,7 1,5 2010 Q3 112,3 1,5 2010 Q4 114,0 1,5 MoM Juin 09 100,9 Juillet 09 104,7 3,8 Août 09 102,3 -2,3 Septembre 09 108,4 6,0

- 12

• Turning points of world trade and industrial production business cycles are very similar

Deviation to trend

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

0

-0.10

-0.08

-0.06

-0.04

-0.02

0

0.02

0.04

0.06

0.08

0.10

World importsWorld industrial production

Growth cycles of world imports and world industrial production

- 13

1. Overview of world economy and general assumptions

2. Imports and domestic demand

3. Exports and price competitiveness

4. Trade balances

- 14

• First signals of a recovery were observed in emerging countries but no decoupling

2005=100

2007 2008 200980

90

100

110

120

130

140

150

WorldDeveloped economiesEmerging countries

Import levels in volume terms

- 15

• China played a leading role here, leading other Asian countries

China: imports by main suppliersBillions of US dollars (3 months mov. avg.)

95 96 97 98 99 00 01 02 03 04 05 06 07 08 090.5

150.0

100.0

50.0

10.0

5.0

1.0

TotalAsiaApecJapanE.U.AseanUSA

- 16

• The situation in other emerging countries remain heterogeneous regarding imports dynamism

2005=100

2002 2003 2004 2005 2006 2007 2008 2009

60

80

100

120

140

160

180

NPIAOPECCEEC

Import levels in volume terms2005=100

2002 2003 2004 2005 2006 2007 2008 2009

40

60

80

100

120

140

160

Latin AmericaEmerging Asia (excl. NPIA)Africa (excl. OPEC countries)Middle East (excl. OPEC countries)

- 17

• We expect only a moderate growth of developed countries imports in 2010. No further gains of terms of trade in 2010 (transfers in 2009 of about 1% of GDP), but no inflationary pressure.

2005=100

2002 2003 2004 2005 2006 2007 2008 2009

60

80

100

120

USAJapanEuropean Union (7 countries)

Import levels in volume terms

2005=100

2002 2003 2004 2005 2006 2007 2008 2009

70

80

90

100

110

120

130

GermanyItalyUKFrance

- 18

1. Overview of world economy and general assumptions

2. Imports and domestic demand

3. Exports and price competitiveness

4. Trade balances

- 19

• Weakness of the dollar might slow the recovery in the Euro area

Price competitiveness: national export prices/competitors in a common currency

2005=100

2002 2003 2004 2005 2006 2007 2008 2009

80

90

100

110

120

Euro areaJapanUSA

2005=100

2002 2003 2004 2005 2006 2007 2008 2009

40

60

80

100

120

140

160

ChinaSouth Korea

- 20

• Germany and Japan especially hit by the contraction of the sales of equipment goods

Total

Machinery and

equipment

Share of Mach. &

Equip. in total exports (%, 7 months 2009)

France -30,8 -32,7 38,4Germany -32,5 -35,5 47,3Japan -35,9 -40,3 63,4Italy -34,2 -35,8 37,5Korea -22,5 -19,5 55,4Spain -30,6 -34,2 36,0UK -34,0 -35,6 35,6USA -24,8 -26,1 42,8

Value of exports (7 months 2009/7 months 2008, percentage change)

- 21

1. Overview of world economy and general assumptions

2. Imports and domestic demand

3. Exports and price competitiveness

4. Trade balances

- 22

• Main trade imbalances have not been fully offset by the crisis

Trade balance

-1000

-800

-600

-400

-200

0

200

400

Eu ro a re a G e rm a n y Ja p a n Ch in a US A

2008

2009

2010

B illions of US dollars

- 23

Downside risks . Would Europe and the U.S. find enough support from their internal demand to keep the global recovery continuing?

. Overheating in China might trigger a double dip late 2010

. Global imbalances raises a risk on the exchange rate system (crash of the dollar)

. As a consequence of trade deficits and high unemployment, the U.S. and Europe can be attracted by protectionist measures

• Some risks of the forecast

- 24

Upside risks . The catching up process (huge output gap) might imply a quicker and longer economic growth of activity and trade than expected

. Emerging countries could take the lead of world trade growth to satisfy internal needs

• Some risks of the forecast