Hard landing is here for trade, roiling world export champs

Los Angeles - As economists gauge the likelihood of recessions in major economies around the world, a slew of recent data shows that a downturn is already evident when it comes to global commerce.

China, the world’s biggest exporter, this week reported the biggest contraction in overseas shipments since

Covid-19 battered the nation in February 2020.

Germany, the global No. 3, saw its exports sink in the latest monthly data by the most on a year-on-year basis since early 2021.

Exports from the United States, which pips Germany for the global No. 2 slot, also contracted over the year to June.

But the American economy is enjoying a newfound sense of optimism thanks to an ingredient many of its rivals lack: robust domestic demand.

It is not alone.

A number of countries with resilient internal dynamics are standing out.

Indonesia, the biggest South-east Asian economy, saw growth accelerate in the last quarter despite a nosedive in exports that was triggered by a sharp decline in prices for the nation’s commodities, like crude palm oil, coal and iron.

India’s expansion is projected to have strengthened in the last quarter amid a pickup in investment.

For providers of services in nations enjoying solid job and income growth, hard-landing fears appear overdone.

But until the global manufacturing cycle works off a build-up of inventories, export-oriented economies will pose a drag on world growth.

“Both sectoral and regional divergences have opened” in the global economy in recent months, JPMorgan Chase & Co economists Joseph Lupton and Bruce Kasman wrote in a note to clients this week.

“The higher gearing of Europe and China” to the industrial cycle has been one stand-out feature, they said.

China’s export downturn has left it particularly exposed, with consumer confidence at depressed levels and a property market slump hampering a rebound from 2022’s pandemic lockdowns.

Germany’s export weakness has seen its industrial production languish at a six-month low, making its emergence from a recession earlier in 2023 all the tougher.

Goods cycle

The risk is that European and Chinese weakness “could spread to the US and the rest of the world”, JPMorgan’s Mr Lupton and Mr Kasman wrote.

In time, the duo anticipates a “turn back up in the goods production cycle”.

But for now, there is a welter of ugly data.

India’s merchandise exports plunged 22 per cent in June from a year earlier.

Taiwan’s exports tumbled for 11 straight months. Vietnam is mired in the longest slump for shipments abroad in 14 years.

Canada’s merchandise trade balance recorded its second consecutive monthly deficit in June on falling exports.

What is also evident in the latest figures is some reshaping in global trade flows, amid a push by Western nations led by US President Joe Biden to reduce reliance on China and Russia.

Mexico has recaptured its top spot as the No. 1 exporter to the US, pushing China to third, after Canada.

And China’s data shows shipments to the US plummeted 23.1 per cent in July.

Exports to markets including Japan, South Korea, Taiwan, the European Union and Australia all dropped by double-digit percentages.

But its shipments to Russia surged 73 per cent in 2023.

China’s share of Germany’s total exports dropped to 6 per cent in the first half of 2023 from 8 per cent in 2020, according to the Kiel Trade Indicator gauge.

One of the world’s largest shipping lines, A.P. Moller-Maersk, said last week that global container trade will probably contract as much as 4 per cent in 2023 – even worse than a previous prediction of a 2.5 per cent contraction.

“There’s a lot of moving parts right now, from rate hikes and the risk of recession, (as well as) uncertainty about gross domestic product growth in China and what demand is going to be in China next year,” Maersk chief executive Vincent Clerc said on Bloomberg Television on Aug 4.

Ms Maitreyi Das, an economist at HSBC Holdings, one of the world’s leading banks for trade financing, said “higher interest rates and resilient inflation has impacted real income, especially in developed markets”, diminishing demand for goods.

Negative baseline

For its part, the team at Oxford Economics this week cautioned that growth in the world economy “looks likely to be weak in the next few quarters”.

The group’s “baseline forecast still looks for growth in the advanced economies to slip into negative territory at the end of 2023 or early 2024”.

Still, there are some signs of hope. Data from Taiwan, a crucial part of global supply chains thanks to its semiconductor business, shows the decline in chip exports is slowing.

If indeed the global cycle in goods turns, economic models suggest that a shift in China would go on to serve as “a harbinger for broader strength elsewhere”, Mr Lupton and Mr Kasman wrote. BLOOMBERG