Chart of the Week: Global Trade Set for a Downturn?
The World Trade Organization dealt a blow to the hopes of anyone hoping that the global economy might be showing signs of improvement in the coming months by announcing last week that it expects the rate of growth in global trade to fall again to only 3.7% from 5% — significantly below the 20-year average growth rate of 5.4%. That might not be the end of the story: “severe” downside risks could put a further dent in growth rates.
As this week’s Chart of the Week indicates, traffic through the Suez Canal in Egypt – a key cargo transportation route – has nosedived in recent weeks and months. Currently, Suez traffic is only slightly better than flat compared to year earlier levels. Unsurprisingly, perhaps, the trends in global GDP growth tend to mirror those in traffic transiting the Suez canal; it is logical that trade volumes would flag during periods of contraction or sluggish growth, as is most vividly illustrated by the close correlation between the two indicators at the height of the financial crisis from late 2008 through 2009.
The Suez indicator isn’t a perfect one, of course. Estimates are that perhaps 8% of the world’s trade in goods travels the length of the canal that links the Mediterranean Sea – and Europe and North America – and the Persian Gulf leading into the Indian Ocean and ultimately the Pacific Ocean. On the other hand, given the otherwise scattered global trade routes and the difficulty gauging what cargoes are traveling on them, capturing 8% of global trade is enough to at least provide an indicator of what’s afoot.
Certainly, in this case, the Suez traffic seems to provide support for the WTO’s bearish forecast. As recently as 2010, the rate of growth in global trade, as measured by the WTO, was a whopping 13.8%, more than double the 20-year average growth rate.
If this cloud has any hint of a silver lining, it lies in the WTO’s provisional outlook for 2013 of a 5.6% increase in the rate of trade growth globally. We’ll continue to monitor this and other indicators of what lies ahead for the global economy in future editions of Chart of the Week.
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