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04/19/12

World Trade Slowing Down

Source: Vesta Monitor


Vesta Monitor

The latest statistics from the World Trade Organization (WTO) indicate that the value of exports stood at $18.315 trillion and the value of imports stood at $18.380 trillion in the past year. The USA, China, Germany, and Japan are the first four exporters and importers. WTO officials estimated that the global trade growth rate for the year 2012 to be 3.7 percent while the growth rates for year 2011 was 5 percent and year 2011 was 13.8 percent. This clearly indicates a sharp deceleration in the global trade rate. The average trade growth rate has been 20 percent during the past 20 years.

Events such as the European sovereign debt crisis, natural disasters, and the uprisings in the Arab World are defined as the main contributors to the trade growth decline. The WTO forecast about the reduction in world trade from 5 percent last year to 3.7 percent this year indicates that the worldwide economic improvement is still on shaky grounds.

After the end of the global recession in 2009, international trade experienced the whopping growth rate of 13.8 percent. However, the estimated growth rate of 3.7 percent reveals the fact that although the amount of trade is still growing, this improvement is very fragile.

The WTO also estimated that the global trade growth rate increases in 2013. Based on the austerity measures that smaller economies in Europe such as Greece, Portugal, Italy, etc. have adopted, the world trade growth rate increase seems to be compatible with the present facts, even though the probability of euro collapse is credible due the deepening of the sovereign debt crisis in Europe.

That is why at present the World Bank predicts a 0.4% increase in global economic growth in 2012 compared to that of 2011, which carries the same WTO massage; i.e. fragile economic improvements.

Another factor that plays an important role in the new WTO estimate is the slowdown in China's economic growth. Economic growth in China, the world's second largest economy, fell to its lowest level in nearly three years in the first quarter, but analysts said they expect a rebound in coming months. China's economy expanded 8.1 percent year-on-year in the first quarter of 2012, the National Bureau of Statistics (NBS) said, slowing from 8.9 per cent in the fourth quarter of last year.

China's economy experienced a more than 10 percent growth rate even during the financial crisis. However, it is expected to be around 8 percent in 2012. The reduction in China's economic growth not only has a weighty influence in world trade, but also can alter the foreign exchange and commodity markets, considering China being one of the largest trade economies in international trade.

There are severe downside risks for growth that could have more serious repercussions for global trade. A hard landing in China, sovereign debt defaults of the PIGS countries, geopolitical risks such as a confrontation or a war with Iran, etc. could potentially disrupt the global economic recovery and hence global trade.

(Copyright 2012 Vesta Capital, LLC)

About: Vesta Monitor is a wholly independent economic research group under the management of Vesta Capital, LLC (www.vestacapitalllc.com). With a focus on West and Southwest Asia (currently Iran, Iraq, and Afghanistan), VM offers clients a complete perspective into the dynamics and developments of its covered regional economies and current affairs. The group reports include:

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