19/8/20: The VUCA World of World Trade

 

WTO projections for global merchandise trade by volume:

Let's take a closer look. Optimistic scenario is for a 13% y/y drop in merchandise trade flows. Pessimistic one is for a 30% drop. Swing is 17 percentage points. These are not forecasts, but are uncertain guesses. We are in a VUCA world, folks.

Let's take a second look: COVID19 shock will be permanent (new trend line post-recovery is permanently below old trendline and flatter) with a minor impact post-2022 that will compound over longer period of time. In pessimistic scenario, the impact appears to be also permanent, but seriously severe.

On a linear trend projection, pre-2008 consistent trend would have left us at around 155 index reading in 2022. 2009-2019 trend would have gotten us to around 122 index reading. Optimistic scenario would leave us around 119 in 2022; pessimistic - at around 95. Wait... optimistic gap for COVID19 and GFC impacts to no GFC and no COVID19 impact is... 33 points! One third of 2015 annual level of trade activity. GFC but no-COVID19 gap to pre-2008 is between 36 points and 60 points. 

And the final look: notice 2019 line... it is virtually flat. As WTO notes (see Chart 4 here: https://www.wto.org/english/news_e/pres20_e/pr855_e.htm) there was, basically, no growth in trade in 2019, before the COVID19 hit. 

We are in a VUCA world, folks.

26/6/20: Trade Restrictions: European Companies

BOFIT newsletter out today highlights the scale of restrictive trade measures applicable to the EU exporters across a number of significant markets:

Of eleven countries included, three managed to lower trade and investment barriers applying to the EU companies over 2017-2019 period, two countries had unchanged barriers, and six showed increasing barriers to trade and investment. In a way, this reflects a shift away from trade and investment globalization focus on the last three decades toward more regionalized and even protectionist policies.

COVID19 pandemic is likely to accelerate this trend.

16/10/19: Ireland and the Global Trade Wars

My first column for The Currency covering "Ireland, global trade wars and economic growth: Why Ireland’s economic future needs to be re-imagined": https://www.thecurrency.news/articles/1151/ireland-global-trade-wars-and-economic-growth-why-irelands-economic-future-needs-to-be-re-imagined.

Synopsis: “Trade conflicts sweeping across the globe today are making these types of narrower bilateral agreements the new reality for our producers and policymakers.”

19/8/19: Import Zamescheniye: Replacing Imports with Imports in the Age of Trade Wars

Trump trade wars have led to increasing evidence of substitution by Chinese exporters to the U.S. with exports via third countries and supply chain outsourcing from China to other destinations. While direct evidence of these trends is yet to be provided (data lags are substantial for detailed flows of goods across borders) and is never to be treated as fully conclusive (due to differences in trade goods designations), here is some macro-level snapshot of latest data on U.S. imports shares for selective countries:

The chart above shows that based on trends, U.S. imports arrivals from China are down in 2017-2019, and they are up, significantly for Vietnam and Taiwan, with less pronounced evidence of imports substitution from other Asia-Pacific countries.

Given several caveats (listed below), the above chart is a 'messy' one:

1. Supply chain substitution takes time and may not be fully reflected in the 2018 data, or to a lesser extent, in 2019 data to-date; and
2. The above chart is based on monthly frequency data, which is volatilion (e to begin with.

With these caveats in mind, here is a chart based on annualized data:

Now, it is easier to spot the trends:

• China exports to the U.S. are down, sharply, especially considering pre-Trade Wars averages against Trade Wars period 2019 averages;
• Vietnam, Taiwan and Mexico are major channels for trade/import substitution (using Kremlin's term "import zamescheniye").
• Japan and Thailand are smaller-scale winners.
• Malaysia and Indonesia are basically static.

Now, historically, China has been beefing up its corporates' use of Vietnam, Thailand, and Mexico as platforms for supply chain diversification, which is consistent with the data responses to the Trade Wars. Indonesia and Malaysia are two surprises in this, although both experienced uptick in FDI from China in late 2018, so the data might not be showing these investments, yet.

6/4/19: Industrial Production and Global Trade are Tanking

The great convergence of simultaneously declining global trade flows and industrial production:

Via topdowncharts.com

The trend is also evident from the global manufacturing and composite PMIs (see https://trueeconomics.blogspot.com/2019/04/4419-bric-manufacturing-pmis-for-1q.html and https://trueeconomics.blogspot.com/2019/04/6419-bric-services-lead-manufacturing.html).

Note the range bounds for two periods (pr-GFC and post-GFC) in the first chart above.

7/2/19: Global Trade Indicators: Tanking

There is no reason to panic about global growth. None. None at all...

Source: topdowncharts.com with my annotations

Nothing to see here. Because, obviously, structurally and statistically lower growth in trade turning negative on foot of Baltic Dry Index literally collapsing over the last two weeks, while China data and stock markets signals remain negative, is just a glitch...

25/3/18: Average Tariffs: 2000-2016

So how do the world's largest 50 economies (by size) score when it comes to the average trade tariffs they have in place? Who is the free trade champion? And who is not?

Here is the data on top 50 largest global economies (I have aggregated EU members of the top 50) into one group, as they share common tariffs against the rest of the world:

Source: data from the World Bank

One thing is clear: tariffs did come down quite substantially between 2000 and 2016. Average world-wide tariff in 2000 stood at just over 8.69%, which fell to just under 4.29% by 2016.

Another interesting fact is that the U.S. average tariff of 1.61% is matched by the EU's 1.6%, with both higher than Australia's 1.17%, Canada's 0.85%, Japan's 1.35%, and Norway's 1.02%. So, the free trade champions of the U.S. and EU are, sort of, poorer than average for the advanced economies, when it comes to trading free of tariffs protection.

Third point worth noting relates to the BRICS: these the largest emerging economies, jointly accounting for 32.0% of the global GDP (PPP-adjusted). Brazil's average tariff in 2016 stood at 8.01%, down from 12.69% in 2000. Russia's average tariff in 2016 stood at 3.43% and we do not have that figure for 2000, while India's was at 6.32% (down from 23.28% in 2000), China's fell from 14.67% in 2000 to 3.54% in 2016, while South Africa's average tariff declined from 4.5% in 2000 to 4.19% in 2016. So, amongst the BRICS, today, Brazil imposes the highest tariffs (86.8% higher than the global average), followed by India (47.4% above the global average), S. Africa (2.3% below the global average),  China (17.4% below the global average), and Russia (20% below the global average). In other words, based on average tariffs, Russia is the most open to trade economy in the BRICS group, followed by China.

Of course, tariffs are not the only barriers to trade, and in fact, non-tariff protectionism measures have been more important in the era of the WTO agreements. However, the data on tariffs is somewhat illustrative.

Here is the same data, covering 2010 and 2016 periods, arranged by the order of magnitude for 2016 tariffs:

Source: data from the World Bank

28/10/17: Trade vs Growth or Trade & Growth?

Much has been written down recently about the dramatic slowdown in growth in global trade flows. For example, after rebounding post-Global Financial Crisis (global trade volumes fell 10.46% in 2009) in 2010-2011 (rising 12.52% and 7.1% respectively), trade volumes growth slowed to below 4% per annum in 2012-2016, with 2017 now projected to be the first year of above 4% growth in trade (4.16%).

This has prompted many analysts and academics to define the current recovery as being, effectively, trade-less growth (see, for example https://www.bis.org/review/r161125c.pdf).

This is plainly false. In fact, growth in global trade volumes has outpaced growth in real GDP (based on market exchange rates) in every year since 2010, except for 2016. As the chart below clearly shows, the difference between the rate of trade volumes growth and the rate of real GDP growth remained positive in average terms:

Instead, what really happened to the two series that both real GDP growth and trade volumes growth have fallen significantly since 2011. Average growth in trade over 1980-2017 period stood 2.31 percentage points above growth in real GDP. The 2010-2017 period average gap between the two is 1.78 percentage points, the second lowest decade average after 1.48 percentage points gap recorded in the 1980s. However, these comparatives are somewhat distorted by influential outliers - years when post-recessions recoveries triggered significantly higher spikes in growth in both series, and years when trade recessions were substantially sharper than GDP growth slowdowns. Omitting these periods from decades averages, as the chart above illustrates, makes the current recovery (2010-2017 period) look much much worse than any previous decade on the record (green dashed lines).

Still, the above presents no evidence that trade weaknesses contrasted GDP growth trends. And there is no such evidence when we look at decades-based correlations between trade growth rates and GDP growth rates:

In fact, correlation between trade growth and GDP growth is currently (2010-2017 period) running at an extremely high levels of 96%, compared to historical correlation (1980-2017) of 87% and compared to pre-2010 average (1980-2009) of 88%.

So what has been happening, thus?

As the chart above clearly shows, there are significant differences in trends between the two series. Using indexing approach, setting 1979 = 100, we can compute index of real GDP activity and trade volumes activity based on annual rates of growth. The two series exhibit a diverging pattern, with divergence starting around the end of the 1980s, accelerating rapidly during 1993-2008 period and then de-accelerating since the onset of the post-GFC recovery. Notably, however, this de-acceleration simply slowed the expansion of the gap between the two series, and it did not reverse it or close it.

Currently, global GDP growth is just above the long-term trend. But global trade growth has been running below its historical trade since 2014. Back in 2004-2008 period, rate of growth in global trade vastly exceeded its trend. Why? Because 2004-2008 period was the period of rapidly inflating real assets bubbles around the globe - the period of ample credit and ample demand for investment goods and raw materials. Similar logic applies to 1994-2000 period of  In other words, the glorious days of global trade expansion, the period of accelerated growth in trade.

In other words, past periods of exploding trade volumes growth are unlikely to reflect sustainable trends in the real economy. These were the periods of substantial misalignment between trade and growth much more than the current period of slower trade growth suggests. In other words, something is happening to both trade and growth, and that, most likely, is what we call a structural slowdown or a secular stagnation.

24/2/2017: Baltic Dry Index is Still in a Disaster Territory

All of the discussions about the Baltic Dry Index - a proxy for global trade flows - in recent weeks was centred on the alleged recovery in the index valuations from the historical lows of 1Q 2016. Much of this recovery was predicated on the cost of fuel that went to inflate the cost of shipping, rather than the genuine uptick in global trade.

In fact, as the most recent data suggests, uptick in global trade volumes is nowhere to be seen:

Source: https://www.fxstreet.com/analysis/global-trade-disaster-nearly-certain-201702220646

But here is a look at the trends in the Baltic Dry Index confirming the simple fact that whatever recovery there has been, the index readings remain deeply in a trade-recession territory:

Worse, Suez Canal traffic is still trending down: http://www.hellenicshippingnews.com/suez-canal-revenues-decline-in-wake-of-sluggish-global-trade/, although Panama Canal volumes are hitting new records http://www.tradewindsnews.com/andalso/1213246/panama-canal-volumes-hit-new-record (the data is not adjusted for the capacity expansion since June 2016). Even with that expansion, Trans-pacific trade is up only 4.3% y/y in 2016, an improvement on 3.7% growth in 2015, but much worse than 5.9% growth in 2014 (see http://www.hellenicshippingnews.com/volume-recovery-in-far-east-europe-and-transpacific-trade/).

Overall, even the improved Baltic Dry Index current average for 2017-to-date is at around 831.6, which is below all 2009-2014 annual averages. Not exactly a sign of booming global economy.

25/5/16: Does the Global Trade Slowdown Matter?

The transition from the Global Financial Crisis, to the Great Recession and to currently fragile recovery has been marked not only by weaker structural growth across the economies and by massive outflows of funds from the emerging markets, but by a dramatic decline in world trade growth. Another stylised fact is that since the onset of the recovery, growth in global trade volumes has been also lagging behind growth in GDP terms.

This has been a puzzling phenomena, inconsistent with the previous recessions. Factually, global trade grew at or below 3 percent in 2012-15, which is below the pre-crisis average of 7 percent (over 1987-2007) and less than the growth of global GDP.

One recent paper (see full citation below) by Neagu, Mattoo and Ruta (2016) attempted to explain this transition to the new global growth environment of relatively subdued global trade growth. Here is a quick summary of their paper.

As chart above shows, there has been a major slowdown in growth in world trade volumes. Per Neagu, Mattoo and Ruta (2016), “proximate explanations of the trade slowdown link it to changes in GDP and, hence, to the fallout of the Global Financial Crisis. While weak global demand matters for trade growth as it depresses world import demand, cyclical factors are not the only determinants of the trade slowdown.”

In simple terms, trade is growing slower than GDP not only because GDP growth is slow itself, but “also because the long-run relationship between trade and GDP is changing. The elasticity of world trade to GDP was larger than 2 in the 1990s and declined throughout the 2000s.” So in simple terms, a 1% change in world GDP used to be associated with 2% change in world trade volumes. It no longer is.

“Among the leading causes of this structural change in the trade-income relationship is a shift in vertical specialization. The long-run trade elasticity increased during the 1990s, as production fragmented internationally into global value chains (GVCs), and decreased in the 2000s as this process decelerated.” In other words, logistic revolution of the 1990s is now over and the low-hanging fruit of improving cost margins on production outsourcing and enhancing delivery efficiencies has been picked, leaving little new momentum to drive growth in trade flows over each unit of increase in global income.

Per Neagu, Mattoo and Ruta (2016), “Economists disagree regarding the implications of the trade slowdown for economic growth (and welfare). Some believe that the slowing down of global trade has no real consequences for economic growth. For instance, commenting on the global trade slowdown, Paul Krugman noted that “The flattening out is neither good nor bad, it’s just what happens when a particular trend reaches its limits”. Others take the opposite view. For instance, in a speech as governor of the Central Bank of India, Raghuram Rajan concluded that “We are more dependent on the global economy than we think. That it is growing more slowly, and is more inward looking, than in the past means that we have to look to regional and domestic demand for our growth.”

According to the authors, “both views have elements of truth but neither may be completely right. On the one hand, the impact of the trade slowdown should not be overstated. Most economies are more open today than they were in the 1990s. In so far as openness per se is associated with dynamic benefits, trade will continue to foster growth. On the other hand, there is a risk of understating the implications of the trade slowdown. If the expansion of trade growth in the 1990s contributed to countries’ economic growth, one may suspect that the flattening of this trend will imply that the contribution of trade to the growth process will be lower.”

So, in summary, then: “Trade is growing more slowly not only because growth of global gross domestic product is lower, but also because trade itself has become less responsive to gross domestic product.”

Neagu, Mattoo and Ruta (2016) go on “to try to investigate the economic consequences of the recent trade slowdown.” The authors focus “…on two channels through which the changing trade-income relationship documented in the literature may affect countries’ economic performance.” These are:

1. “The demand-side Keynesian concern is that sluggish world import growth may adversely affect individual countries’ economic growth as it limits opportunities for their exports.”
2. “The supply side (Adam) Smithian concern is that slower trade may diminish the scope for productivity growth through increasing specialization and diffusion of technologies. In particular, a slower pace of GVC expansion may imply diminishing scope for productivity growth through a more efficient international division of labor and knowledge spillovers.”

So what do they find?

Firstly, “preliminary evidence is mixed”:

• “On the demand side, we find that the elasticity of exports to global demand has decreased for both high-income and developing economies in the 2000s relative to the 1990s.”
• “We also find that the sensitivity of domestic growth to export growth is higher, and has increased more over time, for developing economies compared to high-income economies.”
• Both of “these results, however, hold only when we measure exports in traditional gross terms.”
• “When we use value added exports, which are more relevant for the demand-side mechanism, the change in estimated elasticities is smaller and not statistically significant (although a qualification is that value added trade data are available for a shorter period and fewer countries).”

Secondly, the authors “…try to assess the Smithian concern by focusing on the growth implication of a slowing pace of GVC growth”:

• “…estimates indicate that increasing backward specialization has a positive impact on labor productivity growth…” 
• Quantifying “the growth in labor productivity due to the growth in backward vertical specialization”, the authors find that “while this share is not large, as productivity growth is explained by many factors beyond vertical specialization, its contribution has decreased by half in recent years, suggesting that the trade slowdown is a contributing factor of the decrease in productivity growth.”

In the above, note the change from blue lines (positive link between the degree of vertical specialization and productivity growth) to red lines (negative link).

In short, things are pretty bad: both factors - demand slowdown and trade slowdown - are cross-related and linked. Both are reinforcing each other, yielding growth slowdown across both supply side and demand side margins. And the side effect is: the two effects being correlated also at least in part captures productivity slowdown - aka, secular stagnation dimension.



Neagu, Cristina and Mattoo, Aaditya and Ruta, Michele, "Does the Global Trade Slowdown Matter?" (May 13, 2016). World Bank Policy Research Working Paper No. 7673. Available at SSRN: http://ssrn.com/abstract=2779830

2/5/16: There's Only One Position of Integrity on TTIP: Kill It

In a recent op-ed in FT, Wolfgang Münchau raised a very valid point that globalisation, free trade and markets liberalisation do produce both winners and losers. Nothing new here. But the key point is that this realisation must be timed / juxtaposed against political and social realities on the ground

Quoting from Münchau (emphasis is mine): “In the past two years, there has been a dramatic reversal of public opinion in Germany about the benefits of free global trade in general, and TTIP in particular. In 2014, almost 90 per cent of Germans were in favour of free trade, according to a YouGov poll. That has fallen to 56 per cent. The number of people who reject TTIP outright has risen from 25 per cent to 33 per cent over the same period of time.  These numbers do not suggest that the EU should become protectionist. But… [EU leaders] should be more open-minded about the political costs of this agreement. …A no to TTIP would at least remove one factor behind the surge in anti-EU or anti-globalisation attitudes.

The marginal economic benefits of the agreement are outweighed by the political consequences of its adoption.

What advocates of global market liberalisation should recognise is that both globalisation and European integration have produced losers. Both were supposed to produce a situation in which nobody should be worse off, while some might be better off.”

See the full text here: http://www.ft.com/cms/s/0/a4bfb89a088511e6a623b84d06a39ec2.html

Perhaps it is this dynamic - of the excess supply of losers and the over-concentration of winners - that is behind the dire state of global trade growth:

Wolfgang Münchau's article came in days ahead of the leaks that revealed the duplicit nature of EU and U.S. negotiating positions on TTIP (see Leaked TTIP documents cast doubt on EU-US trade deal), well before we knew that (again, emphasis is mine) "These leaked documents give us an unparalleled look at the scope of US demands to lower or circumvent EU protections for environment and public health as part of TTIP. The EU position is very bad, and the US position is terrible. ...The way is being cleared for a race to the bottom in environmental, consumer protection and public health standards."

In simple terms, TTIP is risking to further magnify the chasm between the winners in the Agreement (larger corporates on both sides of the Atlantic, plus Governments) and the losers (consumers, small firms and entrepreneurs).

The documents reveal that under the TTIP, "American firms could influence the content of EU laws at several points along the regulatory line, including through a plethora of proposed technical working groups and committees." If so, the TTIP will only increase bureaucratic costs and amplify impact of large corporates lobbying power at the expense of smaller firms and start ups.

As bad as the U.S. position, is, EU's position is even worse. Despite making lots of political noise about protecting European consumers, environmental and health standards etc, the EU negotiators have clearly adopted a two-faced-Janus position vis-a-vis different stakeholders. For example, on many points of more controversial U.S. proposals, "the EU has not yet accepted the US demands, but they are uncontested in the negotiators’ note, and no counter-proposals have been made in these areas." In other words, the EU leadership is saying one thing to the European audiences (advancing a virtuous position of a defender of consumer rights and environment) while positing no explicit objection to the U.S. proposals. In simple terms, the EU leadership appears to be outright lying and manipulating public opinion.

How do we know this?

"In January, the EU trade commissioner Cecilia Malmström said the precautionary principle, obliging regulatory caution where there is scientific doubt, was a core and non-negotiable EU principle. She said: “We will defend the precautionary approach to regulation in Europe, in TTIP and in all our other agreements.” But the principle is not mentioned in the 248 pages of TTIP negotiating texts." In plain English, Malmström is lying.

Another example: "The public document offers a robust defence of the EU’s right to regulate and create a court-like system for disputes, unlike the internal note, which does not mention them." Again, what is said for public consumption is at odds to what the EU is saying at the negotiating table.

Wolfgang Münchau pointed that "The marginal economic benefits of the agreement are outweighed by the political consequences of its adoption".  

But you can also add to his equation negative social consequences of the TTIP and adverse consequences to SMEs and entrepreneurs. By the time you do the sums, it is clear that TTIP is not an agreement about free trade, but an agreement about corporatist  system takeover of transcontinental trade and investment flows. As such, its marginal benefits are negative to begin with.

14/1/16: Two Charts to Sum Up Global Growth Environment

SocGen recently produced some interesting charts looking into 2016 trends. Two caught my eye, as both relate to long running themes covered on this blog throughout 2015.

The first one is that of a decline in global trade flows as the driver for growth. Per SocGen: "Global trade growth has been anchored below its historical average since the Great Recession, offering further evidence of tepid world economic recovery. Decreasing global demand, especially due to slowing emerging markets, weighs on the outlook for world trade."

http://uk.businessinsider.com/societe-generales-charts-of-the-global-economy-in-2016-2016-1


Another relates to the second drag on global economic progress - debt overhang. SocGen focuses on Emerging Markets’ debt, saying: "Zero interest policies in the developed world have bolstered debt issuance from EM corporates. Only a fraction of EM countries are immune to the current adverse conditions requiring a cautious approach to these markets."

Both do not offer much optimism when it comes to both cyclical (interest rates forward) and structural (capex and demand capacities) drivers for global growth. And both suggest that 2016 is unlikely to be more robust year for the world’s economy than 2015.

8/1/16: Baltic Dry Index Hits Another All-Time Low

Let's give another cheer to the repaired global economy... as Baltic Dry Index continues to plough new record lows: the index fell 6.9% in YTD terms and down 38.54% y/y to close at a new record low of 445.0 (4.17% below Wednesday close).

or on longer time scale:

But never fear - everything has been repaired.

22/12/15: Baltic Dry Index: not much of a post-Fed bounce

With the optimism of Christmas week forecast (traditionally keen on stressing the upside to the global economic conditions), let's not forget the Baltic Dry Index:

As the chart above shows, global trade ain't doing too well in this *finally repaired* and *full employment-bound* world economy. In fact, the index has been ploughing the depths that put to shame even the abysmal December 2008 crisis lows. Not surprisingly, the post-Fed bounce was pretty much a fizzle...

Ho-ho-ho... 

24/9/15: The Ugly Faces of Trade Protectionism

Neat chart from Credit Suisse summarising the extent (and distribution) of new protectionist policies across several key economies:

Several points worth making:

• The obvious one: the U.S. leads in terms of protectionism. Which is ironic, given the U.S. championship of open trade agreements (TTIP and TPP being the most current ones) and the U.S. tendency to de-alienate the world into 'Free Trade' and 'Protectionist' groups of countries.
• BRIC come second and Europe comes third. Which is again highly ironic as BRIC rely heavily on trade-driven model for growth and Europe can't get over how (allegedly) free trade it is.
• Everywhere, save Russia and the U.S., state aid & bailouts is minor segment of trade protectionism policies.
• Export subsidies are meaningful in China and India.
• Trade defence and finance measures dominate in the U.S., India, Brazil and Europe, and are weaker in Japan and China, while virtually non-existent in Russia.

All-in - a pretty ugly picture of reality post-crisis.

4/8/15: Global Manufacturing PMI Signals Faltering Growth in July

Global Manufacturing PMI was unchanged in July compared to June at 51.0, signalling weak growth and stalled growth momentum. Overall, activity is now at "its joint-weakest reading during the past two years".

Per Markit: "Underpinning the increase in output was further growth in new order inflows. However, the pace of improvement in new business slowed as new export orders declined for the second time in the past three months. New export business decreased in China, Germany, France, the UK, Taiwan, South Korea, Greece, Turkey, Indonesia, Vietnam, Russia and Brazil, and was little-changed in the US and Malaysia."

You can read more on this in my coverage of BRIC Manufacturing PMIs here: http://trueeconomics.blogspot.ie/2015/08/4815-bric-manufacturing-pmis-july-2015.html

2/8/15: Global Trade: Welcome to the Economic ICU

An interesting, if short, note on woeful state of global trade flows from Fitch (link here).

The key point is that:

1. Subject to all the talk about the Global recovery gaining momentum; and
2. Under the conditions of unprecedented past (and ongoing) monetary policy accommodation around the world'

global trade remains severely compressed from mid-2011 forward.

Most importantly, the rot is extremely broad - across all major regions, with no base support for trade flows.

One of the drivers - EMs lack of internal demand:

However, the EMs are just one part of the picture. Per Fitch, "Since 2012, global export volumes have consistently grown by less than 5%. Performance by value has been even worse due to the fall in global trade prices, again led lower by commodities. In April 2015, global export prices were down 16% year on year."

"There are several structural explanations for the continued weakness in global trade in addition to the GFC’s cyclical effects":

• Shift toward domestic growth in China - previously thought to be a catalyst for growth in trade via stimulating demand for imports - has had an opposite effect: Chinese producers and consumers are now increasingly sourcing goods and services internally. This was not predicted by the analysts, though I have been warning that this will be a natural outcome of the continued maturing of the Chinese economy away from producing low value added goods toward producing higher value added output. Thus, reliance of Chinese economy on capital and investment goods and services imports from Advanced Economies has declined. And we are witnessing an ongoing emergence of higher value added consumer goods manufacturing in China, which will further compress imports demands by Chinese markets. More significantly, over time, this will lead to even more complex regionalisation of trade, with trade flows becoming increasingly locked within the Asia-Pacific region, leaving more and more producers in the Advanced Economies facing an uncomfortable choice: shift production to the region or witness decline in imports demand. In line with this, there will be losses of jobs in the Advanced Economies and gains of activity in Asia-Pacific. 
• Fitch points to a policy driver for global trade slowdown: "According to the World Trade Organisation, the use of trade restrictions has been rising since the crisis and trade liberalisation initiatives have slowed relative to the 1990s. Together, these developments may be contributing at the margin to the reduction in elasticity of trade with respect to GDP." Nothing new here, as well. The world is amidst continued debt deflation cycle, with debt-linked protectionism on the rise. This is not just about currency wars, but also about financial repression and structural decline in overall growth.
• Fitch notes a third driver for trade decline: "There has been a change in the relative weights of domestic demand components, with investment falling compared with consumption and government spending… As investment spending is the most pro-cyclical and import-intensive component of domestic demand, a decline in investment tends to have a larger effect on trade." Again, I wrote before extensively on investment collapse in the Advanced Economies, and the fact that the main drivers for this are not a business cycle nor the Global Financial Crisis, but rather a structural decline in long-term growth (secular stagnation). You can read on this more here: http://trueeconomics.blogspot.ie/2015/07/7615-secular-stagnation-double-threat.html.

Fitch note, while highlighting a really big theme continuing to unfold across the global economy, misses the real long-term drivers for the collapse of trade: the world is undergoing deleveraging cycle in terms of Government and private debt, reinforced by the structurally weaker growth environment on both demand and supply sides of the growth equation. The result is going to be much more painful that Fitch (and majority of analysts around) can foresee.

5/3/15: Baltic Dry Index: Slight Gain, Still in Pain

With all the 'feel good' PMI readings of late, Baltic Dry Index has improved slightly (index gained 1.08% yesterday) from the historical lows of 509.00 on February 18 to 559.00 close yesterday.

Still, year on year, the index is down from 1391.00 to 559.00

In rather miserable 2013 on this date, BDI was at 806.00 and on the same day in 2012 it was at 782.00, in 2011 around 1382.00 and so on.

It will take a hell of a lot more 'improvement' to get us back to even remotely normal trading conditions.

25/2/15: Baltic Dry Index: Another Poor Day for EUrecovery Stroy

Two weeks ago, Baltic Dry Index was at 556. Which was bad (http://trueeconomics.blogspot.ie/2015/02/11215-baltic-dry-index-another-low.html). Now, it is at 516 or below late 1980s trough. And the European economy is allegedly picking up.

H/T to @moved_average 

What can possibly go wrong with the 'EUrecovery' story?

11/2/15: Baltic Dry Index: Another low...

Readers of this blog would be familiar with the Baltic Dry Index and with its importance in flagging up trends in global trade and, especially, in European trade.

Well, today, BDI has hit a historical low...

Source: @MktOutPerform

Good luck digging up any good news in that one...