On 1 October, the World Trade Organisation (WTO) presented its latest forecast for trade growth. The outlook has darkened considerably since the last report in April. The WTO now expects world trade volumes to grow at just 1.2% in 2019 and 2.7% in 2020, down from 2.6% and 3.0%, respectively. The WTO forecasts are in line with downward revisions for the global outlook of other major institutions such as the OECD, which now reckons that world GDP growth in 2019 will be the slowest since the recession in 2009. At Cebr, we forecast global GDP to expand at a rate of 2.8% for 2019 as well as 2020, putting us at the more pessimistic end of the spectrum.
A major source for the gloom both in terms of world economic output as well as trade more specifically is the US-China trade conflict. Far from being ‘good and easy to win’ as US President Trump previously claimed, the trade conflict has cast a shadow over the global economy with damaging consequences for China, the US and a host of other countries. The US and China have dug into their positions and are locked into a cycle of escalation, negotiations, backsliding and renewed escalation. Neither side will be quick to give in, turning the conflict into a war of attrition. The longer the trade dispute lasts, the bigger the impact on business sentiment, investment and ultimately employment.
A useful indicator for the impact of the trade dispute on China’s economy is the Cebr Composite China Import Index. The index tracks the exports of major suppliers to China in order to get a reliable picture of Chinese demand for natural resources, electronics, semi-manufactured goods and other inputs. This helps us to not only better understand the health of the Chinese economy via its imports but also, indirectly, the consequences for its major suppliers in the region.
Looking at the latest trade data, we note the exports from South Korea and Japan are still significantly below the levels seen in the last year. In September, Korean exports to China were down 22% on the year, while Japan shipments were down 12% in the year to August. Singapore’s export sector has so far had a challenging year due to a global slump in demand for its electronic products, aggravated by the trade tensions between the US and China as well as the Japanese-Korean trade dispute. Exports from Singapore to China decreased by 23% between August and September and cumulatively exports are still down by 3.4% compared to the January to September period in 2018.
Taking the performance of the key markets together and weighting them by the export share to China, September saw a decrease in the Composite Index, falling from 106.9 points in the previous month to 105.1, a four-month low. Year-on-year, the index is down by 3%. The fact that the index has not fallen further is driven in no small part by Australian commodity exports, required for the infrastructure push by the Chinese government. According to the latest available data, the value of Australian exports to China was up 33% in the year to August and over 56% higher than in January 2018, partly due to higher prices for iron ore.
All in all, the China Import Index suggests that trade in the region is still depressed. While exporters of electronics, such as Singapore, will be hoping that the global demand slump for their products will come to a swift end, Australian miners and commodities exporters are benefitting from the Chinese infrastructure stimulus. Global trade volumes are likely to continue to suffer as long as the US-Chinese trade conflict continues, though our analysis suggests that the Chinese domestic market provides some resilience. Ironically, this might lead to a further prolongation of the stand-off.
Contact: Kay Daniel Neufeld; email@example.com