7/2/16: You Gotta Have Some Heart: Baltic Dry Index

As the global growth prospects are apparently and allegedly improving, and the world is busy printing money left right and centre with currency devaluations rounds stimulating the fabled 'competitiveness', the world trade indicators are no longer flashing red. They are, frankly, in a free fall.

Remember Baltic Dry Index? The one that reflects volumes of goods trade flows? And the one that was testing new record lows almost daily around the end of December 2015 through January 2016?

Behold the latest record: Baltic Dry is now below 300

H/T to @soberlook

Time for IMF eagles to fly some forecasting models to tell us things are just going fine at 5% annual global growth click... Yes, yes... that is, to repeat gain, Baltic Dry at its lowest level in its history.

PS: Ireland's exports are, of course, insulated from all this global nonsense... because when times get tougher in the markets, tax optimisation becomes even more important to MNCs.

30/12/15: Baltic Dry Index: Brick in Search of a Lake's Bottom

While IMF (belatedly) is warning about the risks of slower global growth, the Baltic Dry Index - a strong instrumental variable for global trade flows - has been sinking and sinking, like a brick searching for the bottom.

Yes, IMF did project back in October WEO that global growth will reach 3.56% in 2016, up on 3.123% in 2015. And that the growth in volume of trade flows will rise form just under 3% to 4.3%, with much of this growth accounted for by increased rate of growth in trade in goods (from 2.9% in 2015 to 4.13% in 2016). But, hey... one day someone will be booking real stuff on foot of IMF forecasts. Until then, good news-bad news from Washington forecasters mean zilch for the Baltic Dry.

3/2/15: Global Trade Growth: More Compression, Whatever About Hope...

As I noted just a couple of days ago, global trade growth is falling off the cliff (see: http://trueeconomics.blogspot.ie/2015/02/1215-world-trade-growthnow-scariest.html). And euro area's trade growth is leading to the downside:

So no surprise there that the Baltic Dry Index is tumbling. As noted by @moved_average, the index is now down 577 - the level below the crisis peak lows and consistent with those observed back in 1985-1986 lows.

Ugly gets uglier... but you won't spot this in PMIs...

As an aside, in the chart above, perhaps a telling bit is the lack of any positive uplift in euro area trade growth from the introduction of the euro. 

1/2/15: World Trade Growth:Now a Scariest Chart Candidate

The scary chart of the month: post-Great Recession, World Trade volumes are growing at the slowest average pace in 35 years (even if we are to 1) exclude recession effects, and 2) accept IMF's rosy projection for 2015 and ignore latest Baltic Dry Index tumbling):

31/3/2013: World Trade Drivers: policy or simple innovation?

A very important issue of logistics and transport innovation effect on trade flows is tackled in the study by Bernhofen, Daniel M., El-Sahli, Zouheir and Kneller, Richard, titled "Estimating the Effects of the Container Revolution on World Trade" CESifo Working Paper Series No. 4136, February 2013.

[Note: Italics are mine]

From the abstract: "The introduction of containerization triggered complementary technological and organizational changes that revolutionized global freight transport. Despite numerous claims about the importance of containerization in stimulating international trade, econometric estimates on the effects of containerization on trade appear to be missing. Our paper fills this gap in the literature. Our key idea is to exploit time and cross-sectional variation in countries’ adoption of port or railway container facilities to construct a time-varying bilateral technology variable and estimate its effect on explaining variations in bilateral product level trade flows in a large panel for the period 1962-1990."

Per findings: "Our estimates suggest that containerization did not only stimulate trade in containerizable products (like auto parts) but also had complementary effects on non-containerizables (like automobiles). As expected, we find larger effects on North-North trade than on North-South or South-South trade and much smaller effects when ignoring railway containerization. Regarding North-North trade, the cumulative average treatment effects of containerization over a 20 year time period amount to about 700%, can be interpreted as causal, and are much larger than the effects of free trade agreements or the GATT. In a nutshell, we provide the first econometric evidence for containerization to be a driver of 20th century economic globalization."

Now, 700% over 20 years is a massive uplift in what was already a much-advanced trade system (North-North). With South-South and North-South trade flows now rapidly converging in terms of volumes and type of goods traded to those of North-North, I would suspect we will see an equally massive positive impact on these trade flows as well, and as a result on global trade.

The evidence presented in the study is of huge importance. It shows just how impactful can a simple, non-formal-R&D driven innovation can be and it also puts into the context the scope for policy intervention vs organic business-led innovation intervention in delivering market outcomes.