Chart of the week: Dark clouds gathering for global trade

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Global trade is at its weakest since 2010 [1] and growth looks likely to disappoint in the months ahead, especially if already heightened trade tensions are not resolved or if macroeconomic policy is not adjusted to reflect slowing GDP momentum. Other factors clouding the outlook for trade include a tumble in business confidence and sluggish investment in emerging and developed economies.


Trade volumes contracting

Recent data shows that global imports have been flat-lining – with the exception of the US – and exports are in a modest decline, entirely driven by weakness in emerging markets. Further disappointment looks likely, although not necessarily a steep decline.

While tariff barriers risk boosting the cost of imported intermediate and capital goods and final goods prices for consumers, indirect spill-overs include disruptions to increasingly interconnected cross-border supply chains.

Taking guidance from South Korean (chip) trade data

To illustrate this point, economists often look at the trade data of a country such as South Korea whose semiconductor exports feature large in the global tech business. This makes its chip trade something of a bellwether for the fortunes of the worldwide IT sector, and by extension for business in export-oriented Asia.

Readers should note that in US dollar terms, South Korea accounts for about 50% of Asian chip exports. With chips making up 20% of overall exports, the South Korean economy looks especially vulnerable to swings in demand.

However, while its value chain links with the US and China may suffer in the Sino-US trade spat, the country could also benefit from trade diversion. So what does recent data from South Korea tell us?

Exhibit 1: South Korean exports data

Chart of the week: Dark clouds gathering for global trade

Source: Blooomberg, BNP Paribas Asset Management, data as of June 2019

H2 rebound in doubt

South Korean semiconductor exports bounced back from their dip in May and showed signs of stabilisation in June. However, the latest trade measures have cast a shadow over a possible rebound in the second half of this year. Beyond volatile components such as semiconductor trade, recent data on the country’s core exports have appeared downbeat.

Looking at exports to China, the numbers present little evidence that Chinese policy easing is having an effect on demand. That leaves exporters hoping for interest rate cuts in the US to provide a tailwind for global trade.

[1] according to the World Trade Outlook Indicator released in May


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Marina Chernyak

Emerging Markets Economist

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