Will world trade contract in 2016? Gloomy new figures point that way - ING

Daniel Bosgraaf, Economist at ING, notes that the global trade figures disappoint once again while industrial production seems to hold up as a slew of challenges threaten trade growth in 2016.

Key Quotes

“The volume of trade in goods fell 1.1% MoM in July, according to data released today by The Netherlands Bureau of Policy Analysis (CPB). This is bad news after the 0.8% growth in June, which finally broke three months of trade decline. We can now start to doubt whether world trade will grow at all this year. Indeed, trade already fell 0.8% in Q2 following stagnant growth in Q1.

Industrial production fell as well in July, albeit by a much more modest 0.3%. However, industrial production momentum stays positive for the thirteenth consecutive month, a further break from its traditional synchronicity with trade growth.

A brief uptick of trade in June made us hopeful that the tide had perhaps turned for world trade. The 1.1% drop in July quickly dispelled that. The ongoing negative trade developments and moderately positive industrial production developments further our belief that the traditional link between world trade and industrial production is weakening.

Many challenges threaten world trade: protectionist measures outnumbering liberalising ones, re-shoring, greenfield investment for domestic demand and a slowdown of global value chain expansion all continue to weigh heavily on world trade. More recently, slowdowns in the negotiation and ratification of giant trade agreements (TTIP and TPP) on the back of anti-globalisation sentiment do not help either. Finally, both lower exports and imports in the UK for July may indicate the first negative impact of Brexit on global trade.”