Global trade has been exposed to many shocks that have affected over the past three years, starting with the economic repercussions of the Corona pandemic, and the accompanying closure of economies, all the way to the war in Ukraine and its extended effects.
This is in parallel with the high inflation rates around the world and the monetary tightening policies followed by the majority of central banks with the aim of curbing inflation and its impact on investment rates.
The state of uncertainty dominating the global economic scene has imposed itself strongly, and has contributed to remarkable disturbances in the international trade movement, which is witnessing a rapid decline from pandemic levels in light of the complexity of the current scene and under the weight of the geopolitical developments that the world is witnessing.
In this context, the “High Trade Monitor” report of the Dutch Bureau for Economic Policy Analysis revealed that the volume of global trade declined at the fastest annual pace in nearly three years last July, as “high interest rates began to affect global demand for goods.”
According to the report issued a few days ago, and published by the British newspaper “Financial Times”
▪ Trade volumes declined by 3.2 percent last July, compared to the same month of last year 2022, which is the largest decline since the first months of the Corona epidemic in August 2020.
▪ This followed a 2.4 percent contraction in June, and while evidence suggested global growth was slowing.
▪ After booming during the pandemic, demand for global goods exports has weakened on the back of higher inflation, large interest rate hikes by the world’s central banks in 2022, and increased spending on domestic services as economies reopen after lockdowns.
▪ The shift in export volumes become wide-based, with most international locations inside the international reporting decrease trade volumes in July.
The global Purchasing Managers’ Index, which tracks new export orders, recorded a sharp contraction in August and September across the United States, the euro zone and the United Kingdom.
Economists now expect euro zone export volumes to be flat during the year, after forecasting a 2 percent expansion at the beginning of the year.
Even as interest quotes are not expected to rise similarly within the coming months, imperative banks are unlikely to reduce borrowing fees till there may be greater evidence that underlying rate pressures are contained. Analysts trust that the dearth of credit easing will retain to put stress on exports.
Key factors
A group of main factors driving the slowdown in the pace of global trade are as follows:
▪ Factors related to the war in Ukraine (from February 24, 2022 until now) and its accompanying economic repercussions.
▪ The previous lockdown in China for a long period after Covid-19, and an insufficient recovery, which greatly affected supply chains.
▪ Trade conflicts between the United States of America and China, and mutual sanctions between the two parties, at a time when China and Russia are taking a new direction in international trade (as part of efforts to abandon the US dollar).
▪ The increase in insurance and the cost of shipping goods, which affected the prices of goods, and in light of the high rates of inflation, which weakened the purchasing power of many, which was reflected in demand rates (decreased).
In its today’s financial forecasts, the Paris-based totally business enterprise for economic Cooperation and development highlighted how alternate regulations have limited export sales since 2018.
“Geoeconomic fragmentation and a shift to more inward-looking trade policies would limit the gains of global trade and harm living standards, especially in the poorest countries and households,” the organization warned.
At the same time, the academic specializing in international economics spoke about the factors associated with the rise in oil prices, as one of the signs affecting the next stage in global trade levels, and in light of the estimates that indicate that a barrel will reach $100 before the end of the current year 2022, which will affect prices and shipping. All of these matters directly reflect on global trade.
China…the password
The return of global trade to pre-pandemic levels is linked to the extent of recovery in China.
According to the Chinese Customs Administration, exports (denominated in dollars) decreased by 8.8 percent in August, compared to the same month last year, while imports contracted by 7.3 percent last August, both better than expectations, and this caused a trade surplus of 68 billion. dollar.
The impact of monetary policies followed by central banks (with raising interest rates to curb inflation) in directing investments to various investment banks to benefit from interest, including US treasury bills, and the impact of this on the flow of investments and the movement of trade.
The delayed impact of higher interest rates is likely to further impact demand for certain goods, and it may take several months before global trade bottoms out.”
Demand for imports of goods often purchased with borrowed money – such as cars, home furnishings and capital goods – will weaken the most, Curtis said.
While Mohit Kumar, economist at Jefferies Financial Services, said that trade is likely to follow the trend of global economic growth, as he expected “a slowdown in every major economy in the coming quarters.” Besides weak growth, geopolitical tensions also affected trade.
Separator stations
There are many turning points that international trade has been exposed to over the past years, which has led to its rapid decline and failure to recover, as follows:
▪ In the beginning, it was a natural and logical thing for international trade to be affected during the Corona pandemic.
Due to the “Great Lockdown” as the International Monetary Fund described it at the time, and the difficult situation that the world went through, which affected trade relations between countries and each other.
▪ During the Corona closures, the world turned into what can be described as “closed economies.” This is a hypothetical theory that is believed to be unverifiable on the ground, but the pandemic came to consolidate that situation over a period of time, with the decline in the volume of global trade, the state of closure, and the disruption of supply chains. .
▪ The crisis in Ukraine came after that to make any signs of recovery disappear. It is a political crisis between two camps (the East and the West), and with it the economic map is reshaped in one way or another, in an effort to transform the world from a unipolar world to a multipolar world, in which the United States competes with more than one force. Regional.
He added: “These data have imposed a state of uncertainty on the global economic situation, meaning that no one can predict what might happen in the coming days, which in turn was directly reflected in investors’ confidence in making profits, and the extent of their willingness to engage in activities.” Commercial and investment.
In this context, the World Bank advisor cites the report issued by the United Nations Conference on Trade and Development (UNCTAD) last July, which stated that:
▪ Global foreign direct investment decreased by 12 percent in 2022 to $1.3 trillion, after a wide decline in 2020 and a recovery in 2021.
▪ The organization identified a number of reasons that led to this decline, most notably (the war in Ukraine, rising food and energy prices, and pressures imposed by debt).