"Trade Wars: The Force Weakens"
Alex Bursak
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“Growth, I am not your father anymore” – Trade Vader
In 2016, global trade will be below pre-crisis average (+7%), below GDP growth (+2.4%), below zero in value terms. Four reasons explain the disappointing trade momentum in both volume and value terms in the short-run:
- Subdued global demand: GDP growth will remain below 3% in 2017, for the seventh straight year
- Currency war: Although easing, currency depreciations all over the world are likely to continue as monetary policy should keep diverging in developing countries
- Trend to domesticalization: Recent stimuli have translated into higher consumption of non-tradable goods and services (services exports roughly account for 7% of global GDP)
- Commodities price collapse: Global energy exports are expected to fall by around -USD 518bn in 2016 before slightly recovering in 2017 (+USD 280bn)
Commodities will shape again the contraction in the value of trade, sectors with more value-added content will prove resilient. Sensitivity to prices and value added content explain the divergences among sectors.
Industrial commodities are expected to gather the bulk of export losses in 2016. Energy (-USD 518bn in 2016) and ferrous (-USD 58bn) are the core-risk-centre of the commodities-counter-shock. The agri-food industry is likely to thrive with a modest improvement. Yet, uncertainties remain, stemming from weak demand in large EM such as China, Russia, and Brazil.
Sectors with more value-added content will prove resilient. Exports of electronics and electrical industries will rise by +USD58 and +USD37bn as they benefit from higher demand in advanced economies and an expanding list of products included in the Information Technology Agreement (ITA).
For more information please refer to the Economic Insights of Euler Hermes: