Terrible trade data just being ignored
Posted on 18 July 2009 with no comments from readers
Buried in a corner of the back page of my Gulf News this morning is a news item about the latest Organization for Economic Cooperation and Development comments on global trade figures showing ‘a remarkably similar… synchronized trade collapse… across countries’.
Indeed G7 exports were down 22.8 per cent in the first quarter of 2009 against the same months in 2008, while imports fell by 16.8 per cent. The only good news was that the speed of contraction since July 2008 appeared to be slowing down.
No green shoots here
It is astonishing how little attention this data has received from economic commentators and politicians. Perhaps that is because it just does not fit in with the fashionable green shoots of recovery theory, or the notion that the worst of the recession is past.
Let us be under no illusions. This is a faster and deeper contraction of global trade than anything seen in the 1930s. It is far more universal than in the Great Depression. And there seems absolutely no reason to think an immediate bounce is in prospect.
What the bank bailouts and stimulus packages have done – aside from the important business of keeping the banks afloat – is to offset the very worse of the impact of falling trade. They have not, and logically can not, entirely offset such a huge contraction in global business.
In China – the world’s largest exporter – this is seem at its most dramatic. A potentially crippling loss of one quarter of exports has been offset by an explosion of lending in the domestic market to rapidly produce new demand for cars and fridges.
So far this Chinese gamble is working, although only at the price of piling up bad debts and setting up its own carbon copy of the US subprime lending crisis.
Recovery-free recovery?
But what comes next? Everybody seems to concentrate on the stock market rally rather than the terrible fundamentals of trade. For the stock market then the potential for disappointment from ridiculously high expectations is obvious.
However, if the stimulus and bank bailouts have been all that has sustained us, what happens as they run out? There will have to be more of them, but only at the cost of printing money with the risk that means for inflation and devaluation.
But in the meantime the stage is surely being set for a further deflation in asset values with commodities high on the list of overbought assets. Only when a true bottom is in can come a meaningful recovery, although without some new driving force it is hard to see more than a very flat period of lower economic activity.
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What about this from The National, Abu Dhabi is not immune:
“Abu Dhabi residents are shunning new car purchases during the global downturn but are buying more consumer goods such as clothing, appliances and food, statistics from Mina Zayed Port show.
Vehicle imports slowed dramatically in the second quarter, falling by 81 per cent in April, 83 per cent in May and 86 per cent in June from the same periods last year, as dealerships dealt with falling demand and rising inventories.
In total, 19,809 cars were brought in through Abu Dhabi’s gateway port between January and June of this year, a 50 per cent drop.”
July 21 (Bloomberg) — The U.S. recession may not be coming to an end and there is a risk the economy may experience a “double-dip” contraction, said Martin Feldstein, a professor of economics at Harvard University.
“There is a real danger this is going to be a double dip and that after six months or so we’ll have some more bad news,” Feldstein, the former head of the National Bureau of Economic Research and Reagan administration adviser, said today in an interview on Bloomberg Television. “We could slide down again in the fourth quarter.”
The economy could “flatten out” or “even be positive” in the third quarter, and then it’s likely to contract again in the last three months of the year as the effects of the federal stimulus program wear off and companies finish rebuilding inventories, he said.
“There isn’t going to be enough to sustain a really solid recovery,” he said, even though recent data has provided some “good news” on the economy.