Trade Pain——How Slumping Commerce Threatens Global Growth

by Simon Kennedy at Bloomberg

The world’s biggest economies are finding it increasingly hard to trade their way out of trouble.

Once the grease of global growth, international commerce failed to rebound completely from the 2009 recession and now is slowing anew. Chinese exports tumbled 5.5 percent in August from a year earlier, while those of the U.S. fell 3.5 percent. South Korea and Singapore witnessed double digit declines.

Reflecting such weakness, the World Trade Organization this week cut its forecast for trade this year to 2.8 percent from 3.3 percent. It acknowledged its new prediction may be “over optimistic.”

More worryingly, Carl Weinberg, chief economist at High Frequency Economics in Valhalla, New York, points out that total world exports as of June were running below their year-ago levels at an annualized rate of $1.6 trillion, the equivalent to 2.1 percent of global gross domestic product.

That extended the decline in exports during the first six months of the year to 11 percent from the previous year, enough to fret about stagnation in the global economy given Weinberg’s estimate that there is a 70 percent correlation between expansion and export shifts.

“The contraction of world trade has yet to show a bottom,” said Weinberg. “This could be more than an economic headwind, it could be a tornado.”

China Slowdown

The more-pessimistic outlook for commerce is likely one reason the International Monetary Fund is preparing to cut its 3.3 percent forecast for global growth this year when it holds its annual meetings in Lima next week.

Behind the latest deceleration in trade are the slowdown in China and fellow emerging markets, upheavals in commodity-rich nations and a rising dollar. Still, structural shifts are playing a part too as countries including U.S. and China rely on increased production at home and fewer trade deals are struck, suggesting

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