COLUMN-Global trade indicates slowing economic expansion, says Kemp

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(John Kemp is a market analyst at Reuters. The opinions expressed are his own)

* Card book: tmsnrt.rs/2JVAFSZ

LONDON, July 26 (Reuters) – Global trade volumes continued to increase in May, but the growth rate is slowing, in line with other signs that global economic expansion is entering a slower phase.

Trade volume rose 0.4% in May compared with April, according to the latest data from the Netherlands Bureau of Economic Policy Analysis (“World Trade Monitor”, CPB, July 25).

But volumes in the three months of March through May were only 3.1% higher than the same period a year earlier, a marked slowdown from year-over-year growth of more than 5% at late 2017 and early 2018.

The fastest growth in May was in China, Asia, the Middle East and the United States, with volumes in most other regions falling during the month.

Volumes on the trans-Pacific routes would probably have been flattered by the race for higher tariffs announced by the United States and China, which led to an upsurge in container arrivals in May and June.

The impact is likely to be temporary and is expected to dissipate in the second half of the year as tariffs take effect and the supply chain digests higher than normal inventory after sourcing.

In much of the rest of the world, the picture is one of moderate and increasingly unbalanced growth, following the strong synchronized recovery of 2017 (tmsnrt.rs/2JVAFSZ).

The trade figures are consistent with leading indicators compiled by the Organization for Economic Co-operation and Development (OECD), which show that the rate of economic growth peaked in the second half of 2017.

The OECD composite indicators show growth accelerating in the United States, China and India in the first months of this year, but slowing in other countries.

Signs of moderating growth are also evident in the South Korean KOSPI stock index, often seen as a leading indicator of global trade growth given the country’s strong export orientation.

Over the past two decades, the KOPSI 100 stock index has been closely correlated with global trade volumes as measured by Dutch government statistics.

The 100-stock index peaked at the end of 2017 and declined steadily over the first seven months of 2018.

KOSPI rose 32% in the 12 months to October 2017, but annual comparisons gradually became less favorable and annual growth turned negative in June and July.

While KOSPI remains a good early warning indicator, global trade growth is expected to slow further in the coming months.

Associated columns:

– The oil market takes a cyclical pause (Reuters, July 24)

– A global economic slowdown is likely and necessary later in 2018 or 2019 (Reuters, July 17) (edited by Adrian Croft)


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