The Moment of Truth

(EDC – Peter G. Hall)
Chaotic movements in world economic output gave way to a new phase at mid-year. Suddenly, it seemed that everything got quiet. Far from an antidote to chaos, this is a disquieting quiet, a mid-rebound slowdown that doesn't normally occur. It’s a shock, and many wonder why it has happened.

But shocks have almost become the norm in recent times. Think of the growth cycle that ended in 2008 – it lasted about 16 years, roughly twice the length of a normal growth cycle. Then the economy took its biggest tumble in 60 years. That was followed by an aggressive, six-month rebound that began in the fall of 2009. Agreed, the magnitudes are shocking, but the movements aren't. For the most part, these are normal phases of the business cycle – this one was just super-sized. Read more or watch the video here.

The Perplexing Path of Prices

(Export Development Canada – Peter G. Hall)

It’s easy to get dizzy tracing the recent path of prices. General price movements have oscillated from inflation to disinflation and back again over the past two years. Earlier this year, strong growth rekindled inflation worries in many economies, prompting much discussion about the unwinding of loose monetary conditions, and resulting in tightening actions by various monetary authorities.

Well, it’s time to buckle up again. Price growth is tumbling in the world’s big industrial markets, and the language in key speeches has shifted from inflation back to disinflation – with occasional reference to the dreaded ‘D’ word. Is price softening here to stay, or is this just a short episode?

One or two months of weakness wouldn’t warrant all the worry. But the fact is, meagre monthly price increases have already persisted longer than common definitions of ‘short’. The U.S. consumer price index (CPI) has averaged 1% annualized growth for the past 10 months, while at the same time core inflation has averaged just 0.7%.

Meanwhile, Germany is averaging 1.1% CPI growth, but core prices have been dead flat. France has been extremely weak for six months, and Japan has seen outright declines in CPI in five of the past eight months. Canada is no exception, as both headline and core CPI have been very weak for six months. Among large nations, UK prices are the sole anomaly.

Read more or watch the video here.

Why Currencies Aren’t the Issue

(CBC News)

As G20 finance ministers prepare for meetings in Seoul starting Friday, economists have been assessing the odds of a global currency war.

In a commentary Tuesday, European banking giant BNP Paribas took the threat seriously enough to try to reassure markets that countries would unite to avoid currency jockeying. “The chance of an agreement has increased as the International Monetary Fund uses its influence to convince G20 participants that an agreement is a must,” it said.

But Perry Sadorsky, associate economics professor at York University’s business school in Toronto, said the rhetoric about currency wars is a distraction from the real threat. “Competitive devaluations of national currencies are a reaction to a more pressing problem,” Sadorsky told CBC News.

And that is how to get the global trade in goods, services, savings and investment back in balance. Read more here.

Commodity Oddity

(Export Development Canada – Peter G. Hall)

May, 2010 was just a few days old when the world economy hit a troubling inflection point. Concerns about the viability of Southern European economies combined with slowing growth to sour recovery hopes. Pundits are now proclaiming modest growth in unison, but commodity markets must have the earplugs in. Prices should be falling, but instead they are going the other way. What’s going on?

Commodity prices generally line up well with the economic cycle. The CRB spot price index, a weighted average of all commodity prices, fell during the recessions of the early 1980s and the early 1990s, the global turbulence in 1997-98, the 2001 slowdown and most dramatically in the recent Great Recession. The world economy slowed abruptly in the second quarter of this year, and third-quarter growth weakened further. In stark contrast to this consistent historical record, today’s prices are high and pushing toward the early-2008 peak. Is this, as some believe, a new reality?

Read more and/or watch the video here.

EDC Business Volumes in Emerging Markets Up 28% over 2009

(Canada NewsWire)

Export Development Canada (EDC) today [Monday] announced that its business volumes in emerging markets reached $10.8 billion (all figures Canadian) in the first half of 2010, an increase of $2.4 billion, or 28%, over the same period last year.

“Emerging markets attracted Canadian exporters and investors looking for the best opportunities for growth during the first half, a positive trend for Canadian trade,” said Eric Siegel, President and CEO of EDC. “While some of this increase is influenced by continued slow growth in the U.S., EDC is encouraged because the types of transactions we’re seeing demonstrates a longer-term interest in emerging market business.”

Mr. Siegel added that EDC’s total business volume for the first half ending June 30, 2010 was $37.5 billion compared to $38.2 billion for the same period last year. Total business volume represents the sum of transactions supported throughout all of EDC’s business lines, including financing, guarantees, insurance, bonding and others.

“EDC’S business volumes are on par with the same period last year and on track to meet our forecast for year-end. These volumes are driven by Canadian companies expanding their relationships abroad, a positive trend as we slowly emerge from the global recession,” Mr. Siegel said. Read more here.

U.S. Exits Longest Recession Since World War II

(Industry Week – Andrew Beatty, Agence France-Presse)

According to the National Bureau of Economic Research, the U.S. economy exited recession in June 2009. The announcement was made on Sept. 20. More than eight million jobs were lost in the slump that was triggered by dodgy Wall Street mortgage investments.

President Barack Obama said the end of the “Great Recession” would come as little solace to the millions of people who are still out of work. “Even though economists may say that the recession officially ended last year, obviously for the millions of people who are still out of work, people who have seen their home values decline, people who are struggling to pay the bills day to day, it’s still very real for them.”

The NBER underscored that slow pace of recovery as it issued a statement that confirmed: “The recession lasted 18 months, which makes it the longest of any recession since World War II. Read more here.

WTO Confident of 9.5% Growth in Trade Despite Crisis in EU

(The Financial Express – Ronojoy Banerjee)

The World Trade Organisation is confident of maintaining the predicted 9.5% plus growth in world trade, organisation’s deputy director-general Alejandro Jara told FE in an interview. Jara said that despite the economic crisis brewing in the European Union and its subsequent impact on world trade, overall merchandise trade would grow at a very healthy rate. “Looking at the year so far, our experts feel that it (world trade) is going to grow around 9.5%-10%,” he said. WTO director-general Pascal Lamy had said in March that after a “dismal” year 2009 when world trade dipped 12%, it would grow at a healthy rate of 9.5% in 2010. Read more here.

What Are the Supply Chain Implications for a High Cost China?

(Transport Intelligence – John Manners-Bell)

One dominant theme emerging from the World Economic Forum event in Tianjin is the anticipated rise of Chinese manufacturing costs and its implication for supply chains.

The last twenty years have seen China develop into the world’s foremost manufacturing location. Multinationals have developed global supply chains to supply the world’s rich consumer markets in the West, with production underpinned by low cost labour strategies.

However these strategies are likely to become increasingly unsustainable as costs in China rise, compounded by uncertainty over the prospects of the renminbi. Policy makers in China have consequently seen the necessity to re-focus its economic development policy around technological innovation which will see labour costs become less important.

This is obviously a pragmatic response by the Chinese government and follows the well trodden path of many other formerly developing nations. It is also part of China’s new assertiveness on the world stage as it moves from component supplier to Original Equipment Manufacturer in its own right... Read more here.

Global Recovery Slowing: OECD

(Thomson Reuters)

Global recovery looks to be slowing more than expected as growth weakens in rich economies, and stimulus should be extended or stepped up if the slowdown endures, the OECD said on Thursday.

The Organization for Economic Co-operation and Development forecast growth across the G7 group of major economies to average an annualized 1.4 percent in the third quarter and 1.0% in the fourth, down from 3.2 and 2.5% in the first and second quarters respectively. [...]

For Canada, the OECD has sharply reduced its forecast for third quarter growth to 2.2% from its previous estimate of near 3.2% while the fourth quarter has been cut to 2.3% from 2.9%. That follows annualized growth of 5.8% and 2.0% in the first and second quarter of the year.

The OECD forecast annualized U.S. growth rates of 2.0 and 1.2% in the third and fourth quarters, after 1.6% in the second quarter and 3.7% in the first. Read more here.

China Surplus May Exceed $20 Billion, Stoking Yuan Tension

(Bloomberg)

China may tomorrow say that its trade surplus topped $20 billion for a third month in August in a report that risks stoking American lawmakers’ calls for protection from Chinese imports.

Exports probably exceeded imports by $26.9 billion, compared with $15.7 billion in the same month a year earlier, according to the median of 34 forecasts in a Bloomberg News survey. Shipments abroad gained 35 percent and imports grew 27.5 percent, according to the survey.

The U.S. House Ways and Means Committee will discuss next week China’s currency policy after Premier Wen Jiabao’s government limited the yuan’s gain to less than 1 percent versus the dollar since a June pledge for greater flexibility. With November elections looming, legislators may push a bill letting companies seek tariffs for compensation for an undervalued yuan. Read more here.

Manufacturing Growth Data From The US And China Helps Boost Markets

(MercoPress)

Manufacturing growth in the US and China improved in August, helping to boost global stock markets. The US sector expanded for its 13th straight month in August, according to the Institute for Supply Management. And China’s purchasing manager’s index, or PMI, has revealed its first gain in four months. China’s growth raised hopes that it will increase consumption of US exports, and help sustain America’s economic recovery.

In the US, the Institute said that its manufacturing index rose to 56.3 in August, up from 55.5 in July. A reading above 50 indicates growth. US factories have seen rising demand for exports and also from businesses that are renewing capital equipment and re-building stocks.

Meanwhile, China’s PMI, which measures manufacturing growth, rose to 51.7 in August from 51.2 in July. A separate HSBC survey also showed a rise, reaching a three-month high of 51.9 in August from 49.4 in July. Anything above 50 shows an expansion.

The data from the US and China helped this week to lift stock markets. However in China market performance was more erratic since there are concerns about slowing Chinese economic growth in the long term. Read more here.

China Flexes Its Currency Muscles

(Joong Ang Daily)

Beijing took an important step last week by turning the renminbi into a global currency

China has now surpassed Japan in terms of nominal second-quarter gross domestic product, emerging as the world’s second largest economy after the U.S. The news is hardly surprising. It had been widely expected and was just matter of time.

But the global market was enthralled with different news from China last week. The People’s Bank of China announced on Monday measures to liberalize the bond market, allowing foreign central banks and commercial banks to invest their yuan holdings in sovereign debt as well as corporate bonds on the Chinese interbank bond market. The world’s second largest economy is now pitching its debt as equally attractive as U.S. Treasury bonds. The goal is to widen the international role of the Chinese currency and make it as accessible as the U.S. dollar. Read more here.

Japan: Dark Clouds Obscure the Sunrise

(Export Development Canada – Peter G. Hall)

Last week began with double-barreled news from Japan that grabbed the airwaves. The industrial giant was bumped out of second place among world economies by China. This occurred as growth in Japanese GDP slowed to a crawl in the second quarter. The world seemed shocked, but it shouldn’t have been. China’s ascendancy was as imminent and predictable as Japan’s nascent slowing.

Progress in the post-recession months seemed to fuel hopes that at long last, the Japanese economy was turning the corner. For a six-month span starting last October, GDP growth averaged 4.2% at annual rates, quite a feat for Japan. But the optimists seemed to forget that even this growth still left the country’s GDP a hefty 4.6% below peak, thanks to the pounding that production endured in the recession. They were reminded when the economy eked out just 0.4% growth in the second quarter.

Read more and/or watch the video here.

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.

Container Shipping Growth Rates Remain High, But Analysts Predict Drop

(JOC/PR Newswire)

August through October typically marks the highest shipping annual point, with volumes reflecting the U.S. import of goods to stock store shelves for the holidays. This year, however, it looks as if the peak may have passed before it even arrived. A growing field of research analysts, industry observers and even shipping executives is predicting a slowdown in growth deeper into the year after a strong rebound in shipping volume in the second quarter.

The first half of the year has been one of double-digit growth for cargo, as retailers finally restocked shelves and shippers, nervous about potential capacity shortages, decided to move their holiday season goods earlier than usual, shifting the annual peak shipping season to July. As August comes to a close, however, PIERS Global Intelligence Solutions, a sister company to The Journal of Commerce, expects year-to-year growth in container imports to cool from as estimated 17.6 percent rate in the second quarter to 7.8 percent in the third quarter and 1.4 percent in the fourth quarter. Unemployment, tight credit and underwater mortgages, will continue to hurt import volumes in the months ahead.

“No one seems to be predicting a slump to the volumes of 2009,” reports The Journal of Commerce Cover Story. “While consumer spending generates 70 percent of U.S. economic activity, economists note container volumes also include industrial components and foodstuffs with limited sensitivity to consumer demand.” Read more here.

China Overtakes Japan in 2Q as World’s No. 2 Economy Amid Slowdown in Recovery

(Tomoko A. Hosaka — The Associated Press)

Japan lost its place as the world’s No. 2 economy to China in the second quarter as receding global growth sapped momentum and stunted a shaky recovery. Gross domestic product grew at an annualized rate of just 0.4%, the government said Monday, far below the annualized 4.4% expansion in the first quarter and adding to evidence the global recovery is facing strong headwinds.

The figures underscore China’s emergence as an economic power that is changing everything from the global balance of military and financial power to how cars are designed. It is already the biggest exporter, auto buyer and steel producer, and its global influence is expanding. [...]

China has been a major force behind the world’s emergence from deep recession, delivering much-needed juice to the U.S., Japan and Europe. Tokyo’s latest numbers, however, suggest that Chinese demand alone may not be enough for Japan or other economic giants. Read more here.

World Trade to Grow 10% in 2010

(Industry Week – Agence France-Presse)

The World Trade Organization on July 23 raised its forecast for growth of global commerce to 10% this year, with its director general saying that even this might yet “turn out to be too low.” WTO chief Pascal Lamy said: “Our forecast for world trade this year is plus 10% in volume after the minus 12% we registered in ‘09.” Lamy was speaking at the launch of the trade body’s annual report on the sidelines of the Shanghai World Expo.

In a separate speech at Shanghai’s Institute of Foreign Trade, Lamy said that after last year’s dramatic slump, “trade growth is coming back fast, thanks in no small measure to the continuing dynamism of China and the others.” The WTO’s latest forecast marks a rise from the 9.5% issued in March. The secretariat had warned then that the figure could prove too optimistic as markets were at that point unsettled by Europe’s sovereign debt crisis.

In the trade body’s annual trade report, the WTO focused on the issue of trade in natural resources. It called for greater global cooperation on such trade, warning that a failure to work together could spark new tensions. “I believe not only that there is room for mutually beneficial negotiating trade-offs that encompass natural resources trade, but also that a failure to address these issues could be a recipe for growing tension in international trade relations,” said Lamy in the report. Read more here.

Harper Greets G8 Leaders

(CBC News)

PM hails U.K. budget cuts ahead of dual summit talks

Prime Minister Stephen Harper has formally welcomed G8 leaders at the organization's annual summit in Huntsville, Ont., where they are expected to discuss global security, and Canada's key initiative on maternal and child health.

The leaders of the seven other Group of Eight leading economic powers — France, Germany, Italy, Japan, Britain, the United States and Russia — are gathering in the exclusive Deerhurst Resort near Huntsville before they join other G20 delegates in Toronto on Saturday.

Ahead of the formal talks, Harper praised Britain's new government for its recent spending cuts, saying British Prime Minister David Cameron's budget “highlighted the very fiscal consolidation” Canada was trying to steer the G20 toward at this weekend's summit in Toronto.

Read more here. Comprehensive information on the G8/G20 Summits at CBC’s In-Depth Coverage website.

Related: UK’s budget vs Japanese experience (BBC Newsnight)

Protectionism During the Crisis Had Minimal Impact on the Global Trade Collapse

(World Bank)

Since the global financial crisis began, many countries have raised tariffs on selected products. But there hasn’t been a widespread increase in protectionism via tariff policies, according to a new working paper by Hiau Looi Kee, Cristina Neagu, and Alessandro Nicita. In fact, using new World Bank estimates that summarize trade policies in a wide range of countries from 2008 to 2009, the authors show that only a handful of countries, including Malawi, Russia, Argentina, Turkey, and China, raised tariffs on frequently-traded products. Some economies, such as the U.S. and the EU, have not used tariffs but instead mainly relied on anti-dumping duties. In the worst-case scenario, the rise in tariffs and anti-dumping duties may have driven down trade by about US$43 billion, or less than 2% of the global trade collapse between 2008 and 2009.

Download the World Bank Policy Research Working Paper 5274.

Emerging Economies Make Their Presence Felt

(International Freighting Weekly – Kizzi Nkwocha)

Shift in global economic power could impact supply chains

The rapid growth of emerging economies may lead to a long-term shift in global economic power – and that could affect how freight flows around the world, according to a new report.

Perspectives on Global Development: Shifting Wealth, published by the Organisation for Economic Co-Operation and Development (OECD), says the aggregate economic weight of developing and emerging economies should surpass that of the countries that currently make up the advanced world (the U.S., Europe, etc) within the next two decades.

The study says developing countries share of the world’s total economic power has risen from 40% of in 2000 to 49% today – and will be 57% by 2030. The OECD says that, due to their rapid growth and sheer size, India and China will remain the key influencers of macroeconomic variables that matter for poor countries – interest rates, the price of raw materials and wage levels for low-skill jobs – and will continue to have major impacts on global trading and investment patterns. Read more here.