Friday, August 20, 2010

In Search of Growth... Elsewhere

(Export Development Canada – Peter G. Hall)

Recent international trade statistics corroborate what is obvious in other economic indicators: growth is slowing worldwide. For the trade stats, it’s a new phenomenon, but other, forward-looking data suggest that weakness will linger through the second half of this year. Governments, worried enough about local demand, are busy implementing trade promotion policies. Are they likely to succeed?

The rebound from the drubbing trade took in late 2008 makes it look like a great solution to domestic woes. Worldwide, export growth vaulted from deep negatives back into a solid, double-digit pace, recovering a good chunk of lost ground over the past three quarters. It’s the very recent data that rings a more ominous tone. Exports had become an engine of U.S. growth, but in June they shrunk back by 1.3%. At the same time, exports fell 2.5% in Canada and 0.6% in Japan, while they were flat in Singapore, the Asian trade hub. Numbers aren’t down universally, but there are questions about the sustainability of the recent spurts in the UK and Germany, and of ongoing Chinese growth.

What makes the impending slowing more dangerous is the extent to which the rebound in trade has influenced overall GDP growth. During the good quarters, U.S. trade activity was up 14%, while GDP growth averaged 3.4%. German GDP growth was modest at 2%, but trade expanded on average by 12%. Japan, which in recent years has been particularly trade-dependent, saw 22% trade growth while GDP averaged just 3.3%. Canada has likewise seen an eye-catching increase in exports and imports, averaging 15% while GDP tracked at 4%. In these locations, the trade balance wasn’t necessarily contributing to the bottom line, but both rapid export and import activity creates local jobs.

Read more or watch the video here.