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Global Trade Recovery Could Be Weakened By Multiple Disputes

Global Trade Recovery Could Be Weakened By Multiple Disputes

According to CPB Netherlands Bureau for Economic Policy Analysis, world trade experienced an “unprecedented” decline in April as major economies suffered from strict lockdowns due to coronavirus. The volume of global trade in goods dropped by 12.1% MoM in April (the largest monthly contraction since records began in 2000). On a three-month moving average, the index was also down 7.2% in April (largest decline since March 2009) and should contract even more in May.

However, WTO Director‑General, Roberto Azevêdo, noted that “The fall in trade we are now seeing is historically large – in fact, it would be the steepest on record. But there is an important silver lining here: it could have been much worse.” In the details, the latest WTO report highlighted that “In light of available trade data for the second quarter, the April forecast’s pessimistic scenario, which assumed even greater health and economic costs than what had transpired, appears less likely.”

As a matter of fact, latest high frequency data suggest that the worst seems behind us (if there is no second coronavirus wave later this year) with the Baltic Dry Index recovering since late May/early June. Looking at the 20-day moving average, the index could even turn positive on a YoY basis in early July.

The ongoing normalization (reopening) in China, Eurozone, several U.S. states and Asian countries imply that both private investment and household expenditures will mechanically rebound from 3Q20 so that global trade growth will exit almost two years of recession.

Nevertheless, excluding several risks such as a second coronavirus wave, several trade disputes could slow the recovery. First of all, the long-lasting clash between U.S. and China. Despite positive comments from U.S. officials, the latest figures showed that, even if China boosts significantly its purchases of U.S. goods, it will be far from meetings U.S. demands defined in the “phase one” agreement.

…click on the above link to read the rest of the article…

“These Numbers Are Ugly” – WTO Forecasts Collapse In World Trade, Recovery For 2021

“These Numbers Are Ugly” – WTO Forecasts Collapse In World Trade, Recovery For 2021

The World Trade Organization (WTO) published a new report on Wednesday that is truly apocalyptic, and crushes all hopes that a V-shaped recovery would be seen this year (similar to what Morgan Stanley said last week): 

“World trade is expected to fall by between 13% and 32% in 2020 as the COVID 19 pandemic disrupts normal economic activity and life around the world,” the WTO report said. 

The Geneva-based body does not see a recovery in global trade until 2021, and even then, the outcome of recovery is mainly dependent “on the duration of the outbreak and the effectiveness of the policy responses.” The economic recovery could be anywhere from 21% and 24%. 

“This crisis is first and foremost a health crisis which has forced governments to take unprecedented measures to protect people’s lives,” WTO Director-General Roberto Azevêdo said.

“The unavoidable declines in trade and output will have painful consequences for households and businesses, on top of the human suffering caused by the disease itself.” 

“The immediate goal is to bring the pandemic under control and mitigate the economic damage to people, companies and countries. But policymakers must start planning for the aftermath of the pandemic,” he said.

“These numbers are ugly – there is no getting around that. But a rapid, vigorous rebound is possible. Decisions taken now will determine the future shape of the recovery and global growth prospects. We need to lay the foundations for a strong, sustained and socially inclusive recovery. Trade will be an important ingredient here, along with fiscal and monetary policy. Keeping markets open and predictable, as well as fostering a more generally favourable business environment, will be critical to spur the renewed investment we will need. And if countries work together, we will see a much faster recovery than if each country acts alone.”

…click on the above link to read the rest of the article…

“Unprecedented Decline” – The Collapse In World Trade Is A Once In A Generation Shock

“Unprecedented Decline” – The Collapse In World Trade Is A Once In A Generation Shock

COVID-19 is expected to produce a global recession depression as nearly all of the world’s major economies have ground to a halt between February and March, expected to continue through April.

The crash in China’s economic activity, shown last month, suggests that Europe and the US will face similar outcomes. There is some concern that the longest economic expansion on record will end this quarter as the global economy has been battered by bat soup.

As the fast-spreading virus terrorizes the US, China, Italy, Spain, Germany, France, Iran, the UK, Switzerland, South Korea, and other countries, more than 537,000 confirmed cases had been recorded across the world, with 24,100 deaths.

Governments have had no other choice than to order a complete shutdown of their respected economies to flatten the curve and slowdown infections. As World Trade Organization (WTO) Chief Economist Robert Koopman told Bloomberg, mass quarantines and shuttering of businesses has resulted in a plunge in world trade — “could be seen as a war-like scenario without the physical asset destruction.”

Data from the world’s busiest ports in China showed containers were piling up with no place to go after supply chain disruptions were seen due to shutdowns in the country. There’s also been a significant decline in maritime activity from China to North America, China to the Mediterranean, and China to Europe as the virus crisis worsens in the Western Hemisphere.

In early March, we showed how supply chain disruptions from China started to wash ashore on US West Coast ports, especially collapsing containerized volumes at the Port of Long Beach. IHS Markit data compiled by Bloomberg shows US import and export volumes dramatically slowed in the weeks leading up to the shutdowns of US cities.

…click on the above link to read the rest of the article…

Shocking New Study Concludes That The “Best Case Scenario” For A COVID-19 Pandemic Is 15 Million Dead

Shocking New Study Concludes That The “Best Case Scenario” For A COVID-19 Pandemic Is 15 Million Dead

Over the past week, the number of confirmed cases of COVID-19 outside of China more than tripled once again.  Hopefully it is extremely unlikely that such a rapid growth rate will continue, because if it does, there will be more than a million confirmed cases outside of China just a month from now.  I don’t even want to imagine the level of fear that would cause, and needless to say that would be absolutely devastating for the entire global economy.  Of course if we do get to a million confirmed cases, there won’t be any way to keep it from spreading everywhere on the entire globe, and the ultimate death toll could be unimaginable.

According to the WHO, the current death rate for this outbreak is 3.4 percent, and many experts believe that it will continue to go higher.

That means that a whole lot of people will die if this virus cannot be contained somehow.

Researchers at a major university in Australia modeled seven different scenarios for how a COVID-19 pandemic might go, and in the “best-case scenario” the death toll was 15 million

New modeling from The Australian National University looks at seven scenarios of how the COVID-19 outbreak might affect the world’s wealth, ranging from low severity to high severity.

Four of the seven scenarios in the paper examine the impact of COVID-19 spreading outside China, ranging from low to high severity. A seventh scenario examines a global impact in which a mild pandemic occurs each year indefinitely.

But even in the low-severity model — or best-case scenario of the seven, which the paper acknowledged were not definitive — ANU researchers estimate a global GDP loss of $2.4 trillion, with an estimated death toll of 15 million.

A pandemic that kills 15 million people would change everything.

…click on the above link to read the rest of the article…

The Coronavirus Is A Nightmare For The Global Economy

The Coronavirus Is A Nightmare For The Global Economy

Trade is already being crippled. And there’s no relief in sight.

As China has now placed hundreds of millions of its citizens under quarantine, its economy is grinding to a halt.

Workers can’t leave their homes. Factories are idle. Most (if not all) of China’s ports are no longer shipping. International flights are increasingly banned from the country.

When the world’s #2 economy hangs up a big “CLOSED” sign, that’s going to result in a major negative impact on global trade.

As the manufacturing powerhouse to the world, you’ll be challenged to think of ANY industry that won’t experience serious supply chain interruptions and shortages from China’s woes. For instance, did you know China makes the vast majority of our prescription pharmaceuticals?

A MASSIVE hit to the global economy will directly result from the damage the Wuhan coronavirus is currently doing. And it may get worse, a lot worse.

So ignore today’s ridiculous all-time high stock prices. They can’t last in the face of what’s coming.

OECD Slashes Global Growth Outlook, Warns Germany Already In Recession

OECD Slashes Global Growth Outlook, Warns Germany Already In Recession

In one of the most downbeat forecasts on the global economy that we’ve seen so far this year, the Paris-based organization of wealthy nations known as the OECD – the Organization for Economic Cooperation and Development – warned that the global economy is heading toward a recession, and that governments aren’t doing enough in terms of fiscal stimulus to try and boost the economy. 

“Escalating trade policy tensions are taking an increasing toll on confidence and investment, adding to policy uncertainty, weighing on risk sentiment in financial markets, and endangering future growth prospects,” the OECD said.

The advocacy for fiscal stimulus follows reports that Germany is considering a “shadow budget” to bolster public investment as Europe’s economy slides.

“Our fear is that we are entering an era where growth is stuck at a very low level,” said OECD Chief Economist Laurence Boone said. “Governments should absolutely take advantage of low rates to invest in the future now so that this sluggish growth doesn’t become the new normal.”

After cutting all of its forecasts from four months ago, the OECD now sees global growth slipping below 3% to 2.9%. 

Of course, this pattern of cutting GDP forecasts is nothing new.

The OECD became the latest to warn about the global economy, after the Fed, the ECB and the PBOC have all eased policy to try and bolster growth in recent weeks. But the OECD is convinced that without government stimulus, the global economy is headed for a protracted downturn.

Manufacturing has born the brunt of the economic slowdown thanks to the tit-for-tat trade war between the US and China, while the services sector has proved unusually resilient so far. But the OECD warned that “persistent weakness” in industry will ultimately weigh on the labor market, dragging down household incomes and spending.

 …click on the above link to read the rest of the article

DHL Sounds Alarm On Collapsing World Trade: “Significant Downturn” Underway

DHL Sounds Alarm On Collapsing World Trade: “Significant Downturn” Underway 

A new quarterly report from logistics company DHL, measured global air and sea cargo trade volumes between March and June, found trade data continues to deteriorate in the US and China as there is still no resolution to end the trade war, reported South China Morning Post(SCMP).

Chinese imports were “losing significant momentum,” the report stated, indicating the epicenter of the slowdown was situated in basic raw materials, capital equipment and machinery, and consumer fashion goods. The loss of momentum in DHL trade data has also been confirmed in official Chinese import data releases.

The report indicated that the US trade outlook is more dangerous than China: DHL expected a “significant downturn, driven by heavy losses in exports outlook.” DHL said both air and sea freight have plunged into negative territory in 2Q19, with extreme weakness in basic raw materials, chemicals, and technology.

“The declining outlook for US exports indicates that, so far, the US is missing its goal of strengthening its export economy with a harsher trade course against China,” DHL said.

DHL’s Global Trade Barometer measured air and sea container freight for seven countries, which together accounted for more than 75% of world trade

The report focused on early-cycle commodities to detect turning points in global trade flows — goods such as automobile bumpers, touch screens for smartphones, and brand labels for clothes.

If shipments of early-cycle commodities edged down, DHL was able to forecast lower demand finished goods.

“The data is expressed as a figure, with a reading above 50 indicating a positive outlook over the three month period, and below 50 a negative. For the US, air trade fell from 53 in March to 45 in June, while sea trade fell from 57 to 43. In the case of China, air trade fell from 57 to 51 over the same period, while sea trade fell from 55 to 47,” said SCMP.

 …click on the above link to read the rest of the article…

“Significant Slowdown” Spooks Maersk At Mediterranean’s Third Largest Port

“Significant Slowdown” Spooks Maersk At Mediterranean’s Third Largest Port

Malta Freeport, the third largest transshipment port in the Mediterranean region and located on the island of Malta, has seen a “significant slowdown in business activity” since 2H18.

One of its major clients, Maersk, the largest container ship and supply vessel operator in the world, has decided to move its operations from Malta to other ports in North Africa after Mediterranean shipping routes have been severely affected by the synchronized global slowdown.

The Times of Malta reported that Freeport’s management notified unions and other clients that Maersk and Mediterranean Shipping Company (MSC) will be shifting operations from Malta to other African ports, is expected to reduce business at Malta’s container terminal by 35% next month.

Last year’s figures show the port handled 3.3 million containers in its transshipment activities, but with Maersk and MSC halting operations, that number is expected to be dramatically less.

A spokesman for Freeport confirmed to the Times of Malta that Maersk and MSC have departed.

“Maersk recently informed us that it will be shifting some of the services that are being carried out through Malta Freeport to a new fully-automated facility in Tangier Med, Morocco, and to Port Said in Egypt.”

Maersk has been operating from Malta for at least a decade, handling import shipping routes to and from China.

Industry sources said shipping volumes have already decreased at Freeport, as a severe economic slowdown in Europe and Asia have sent container rates between both regions into a tailspin in the last several quarters.

“The slowdown can already be felt and there are already fewer people working, particularly on overtime,” the source said. 

Last month, data from the CPB Netherlands Bureau for Economic Policy Analysis revealed world trade volume fell 1.8% in the three months to January compared to the preceding three months as a global slowdown gained momentum.

 …click on the above link to read the rest of the article…

Global Trade Collapsing To Depression Levels

Global Trade Collapsing To Depression Levels

With the trade war between the US and China re-escalating once more, investors are again casting frightened glances at declining global trade volumes, which as Bloomberg writes today, “threaten to upend the global economy’s much-anticipated rebound and could even throw its decade-long expansion into doubt if the conflict spirals out of control.”

“Just as tentative signs appeared that a recovery is taking hold, trade tensions have re-emerged as a credible and significant threat to the business cycle,” said Morgan Stanley’s chief economist, Chetan Ahya, highlighting a “serious impact on corporate confidence” from the tariff feud.

To be sure, even before the latest trade war round, global growth and trade were already suffering, confirmed most recently by last night’s dismal China economic data, which showed industrial output, retail sales and investment all sliding in April by more than economists forecast.

A similar deterioration was observed in the US, where retail sales unexpectedly declined in April while factory production fell for the third time in four months. Meanwhile, over in Europe even though Germany’s economy emerged from stagnation to grow by 0.4% in the first quarter, “the outlook remains fragile amid a manufacturing slump that will be challenged anew by the trade war.” As a result, investor confidence in Europe’s largest economy unexpectedly weakened this month for the first time since October.

Framing the threat, a study by Bloomberg Economics calculated that about 1% of global economic activity is at stake in goods and services traded between the US and China. Almost 4% of Chinese output is exported to the U.S. and any hit to its manufacturers would reverberate through regional supply chains with Taiwan and South Korea among those at risk.
U.S. shipments to China are more limited, though 5.1% of its agricultural production heads there as does 3.3% of its manufactured goods.

…click on the above link to read the rest of the article…

World Trade Suffers Biggest Collapse Since Financial Crisis

World Trade Suffers Biggest Collapse Since Financial Crisis

The recent collapse in world trade volume is the worst since the financial crisis and as dangerous as during the dot-com bubble of the early 2000s, according to The Telegraph.

Data from the CPB Netherlands Bureau for Economic Policy Analysis revealed that world trade volume dropped 1.8% in the three months to January compared to the preceding three months as a synchronized global downturn gained momentum.

“An industrial slump has been triggered by a perfect storm of factors, including China’s slowdown, the car industry downturn, Brexit paralysis and Donald Trump’s attempt to upend the international trade system with tariffs on European and Chinese goods,” explained The Telegraph.

A further escalation of the trade war between the U.S. and China could spark a world trade recession. Already, Washington has imposed steep tariffs on Chinese imports worth $250bn in a tit-for-tat battle with industrial centers in Asia and Germany experiencing sharp drops in trade in recent months.

The Telegraph describes the sudden loss in trade momentum is equivalent to the months after the dot com bubble imploded in 2001 when trade volumes sank as much as 2.2%. Today’s current move is the biggest fall since the financial crisis of 2007–2008 when global trade plummeted, diving as much as 12.7%.

The International Monetary Fund warned last week that this is a “delicate moment” for the global economy as many countries are in the midst of a severe slowdown.

The global economy has “lost further momentum” in the last six months, said IMF Managing Director Christine Lagarde.

Lagarde pinned trade volume deterioration on decelerating global growth and “the impact of increased trade tensions on spending”  on producer goods.

The global downturn in trade is widespread geographically. The synchronized slowdown is expected to stabilize beyond 2020; however, in the meantime, it’s likely the world could be headed for a trade recession, if not already in one. 

Global Economic Slump Imminent As Korean Exports ‘Canary’ Crashes

In the latest sign that the slowdown in China and the global trade war is weighing on global commerce, South Korea’s exports fell  in December. The 1.2% YoY decline was dramatically below the +2.5% YoY expected and missed even the most pessimistic forecast (which was still a rise).

Korean exports were hit by falling memory-chip and oil prices and cooling demand from China and imports also disappointed, rising 0.9% YoY.

“The (annual) decline came about a month earlier than I thought, but I expect Korean exports to be weak throughout the first half of this year, posting low single-digit growth at best,” said Lee Seung-hoon, an economist at Meritz Securities.

South Korea is the first major exporter to report trade data each month, so provides an early reading of global trade; and as the world’s leading exporter of computer chips, ships, cars and petroleum products, December’s data is a major red flag for the global economy.

As the chart below shows, Global equity market earnings growth (and contraction) is extremely tightly correlated to Korean export growth (or contraction)…

So maybe global stocks are on to something with their recent collapse as they increasingly price in an earnings recession.

Globalization Has Hollowed Out Rural America

Globalization Has Hollowed Out Rural America

The value of local control and local capital far exceed the pathetic “savings” reaped from shoddy commoditized goods.
What do we make of an economy in which a handful of bubblicious urban areas are magnets for jobs and capital while rural communities have been hollowed out? The short answer is that this progression of urbanization has been one of the core dynamics of civilization for thousands of years: opportunities are greater in cities, and so people move from rural areas with few opportunities to cities with greater opportunities.
But that’s not the only dynamic hollowing out America’s rural communities: globalization plays a key role, too. Rural economies can rarely muster economies of scale that enable globally competitive enterprises. Rural communities generally lack the capital, expertise, global supply chains and cheap transportation costs that are the building blocks of successful global production and distribution.
In a global economy characterized by over-capacity, over-production and mobile capital, localized rural economies can’t compete with the low cost of commoditized products distributed by finely tuned global supply chains and cheap transportation.
Pre-globalization and cheap transport, local bakeries imported bulk flour and baked bread that was lower in cost than loaves shipped in from afar. The local bakeries held the competitive price advantage, and so local bakeries could pay local labor and local taxes that then supported the rest of the local economy.
But in today’s economy, commoditized bread can be delivered rural communities at prices local bakeries cannot match.
The same holds true for virtually all globally tradable goods– foods, clothing, etc. The only economic sectors with a toehold in rural communities are corporate farms, the occasional small specialty corporate factory making non-commoditized components and non-tradable services such as hair salons, motels, thrift shops, cafes, etc.

…click on the above link to read the rest of the article…

Global Trade Hit By Rare Decline As “Supply Chains Seize Up”

With the Trump administration about to slap tariffs of up to 25% on an additional $200 billion in Chinese goods, new data suggests that the global slowdown has already begun. Confirming our observations from two weeks ago, in which we showed that the latest freight data indicated global trade volumes are slowing…

…on Friday Bloomberg highlighted that the world trade monitor compiled by the CPB Netherlands Bureau for Economic Policy Analysis showed the rolling three-month trade volumes are not only in decline but have entered into negative territory, an ominous harbinger of economic trouble.

As Bloomberg notes, “the drop is particularly striking given that commodities, one of the largest and most volatile subsets of globally traded goods, have been doing quite well – the CPB’s indexes of fuels and non-fuel commodities both reached the highest levels since 2014 in May.”

Instead, confirming the ominous recent developments in Brazil, where a clustering of supply-chain linked problems has resulted in a near paralysis in the country’s shipping industry, Bloomberg notes that “the weakness is coming not from materials but from manufactured goods, as global supply chains seize up.

With the CPB index printing negative throughout the second quarter of the year, that echoes the numerous reports of a slowdown in the US. Manufactures “reported higher prices and supply disruptions that they attributed to the new trade policies,” according to the Federal Reserve’s July Beige Book, in addition to “higher input prices and shrinking margins.”

Next Wednesday, another Beige Book is due, and it is likely to show more evidence of slowing trade as a result of escalating trade wars.

…click on the above link to read the rest of the article…

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A Hard Rain’s a-Gonna Fall

A Hard Rain’s a-Gonna Fall

The prospects for the rest of the year are awful

Après moi, le déluge

~ King Louis XV of France

A hard rain’s a-gonna fall

~ Bob Dylan (the first)

As the Federal Reserve kicked off its second round of quantitative easing in the aftermath of the Great Financial Crisis, hedge fund manager David Tepper predicted that nearly all assets would rise tremendously in response.

“The Fed just announced: We want economic growth, and we don’t care if there’s inflation… have they ever said that before?”

He then famously uttered the line “You gotta love a put”, referring to the Fed’s declared willingness to print $trillions to backstop the economy and financial makets.

Nine years later we see that Tepper was right, likely even more so than he realized at the time.

The other world central banks followed the Fed’s lead. Mario Draghi of the ECB declared a similar “whatever it takes” policy and has printed nearly $3.5 trillion in just the past three years alone. The Bank of Japan has intervened so much that it now owns over 40% of its country’s entire bond market. And no central bank has printed more than the People’s Bank of China.

It has been an unprecedented forcefeeding of stimulus into the global system. And, contrary to what most people realize, it hasn’t diminished over the years since the Great Recession. In fact, the most recent wave from 2015-2018 has seen the highest amount of injected ‘thin-air’ money ever:

Total Assets Of Majro Central Banks

In response, equities have long since rocketed past their pre-crisis highs, bonds continued rising as interest rates stayed at historic lows, and many real estate markets are now back in bubble territory. As Tepper predicted, financial and other risk assets have shot the moon.

And everyone learned to love the ‘Fed put’ and stop worrying.

…click on the above link to read the rest of the article…

How to Run the Economy on the Weather

How to Run the Economy on the Weather

Stoneferry detail

Before the Industrial Revolution, people adjusted their energy demand to a variable energy supply. Our global trade and transport system — which relied on sail boats — operated only when the wind blew, as did the mills that supplied our food and powered many manufacturing processes.

The same approach could be very useful today, especially when improved by modern technology. In particular, factories and cargo transportation — such as ships and even trains — could be operated only when renewable energy is available. Adjusting energy demand to supply would make switching to renewable energy much more realistic than it is today.

Renewable Energy in Pre-Industrial Times

Before the Industrial Revolution, both industry and transportation were largely dependent on intermittent renewable energy sources. Water mills, windmills and sailing boats have been in use since Antiquity, but the Europeans brought these technologies to full development from the 1400s onwards.

At their peak, right before the Industrial Revolution took off, there were an estimated 200,000 wind powered mills and 500,000 water powered mills in Europe. Initially, water mills and windmills were mainly used for grinding grain, a laborious task that had been done by hand for many centuries, first with the aid of stones and later with a rotary hand mill.

785px-Jan_van_Os_-_Een_zomers_landschap

“Een zomers landschap” (“A summer landscape”), a painting by Jan van Os.

However, soon water and wind powered mills were adapted to industrial processes like sawing wood, polishing glass, making paper, boring pipes, cutting marble, slitting metal, sharpening knives, crushing chalk, grinding mortar, making gunpowder, minting coins, and so on. [1-3] Wind- and water mills also processed a host of agricultural products. They were pressing olives, hulling barley and rice, grinding spices and tobacco, and crushing linseed, rapeseed and hempseed for cooking and lighting.

…click on the above link to read the rest of the article…

Olduvai IV: Courage
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Olduvai II: Exodus
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