Capitalism has been the only system in history in which wealth has not been acquired through looting, but through production, not by force, but through trade, the only system that has defended the right of men to their own mind, to their work, to their life, to themselves”.
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World trade had a stellar year in 2021, expanding by around 12 percent. But this year, trade growth has slowed considerably and faces a number of headwinds, including high commodity prices and tighter monetary policy.
Forecasts suggest global export growth will slow to 3.1% before recovering slightly in 2023, a recovery expected to be driven by China’s economic dynamism and improvements in supply chains.
The slowdown reflects the effects of the change in the consumption of goods for that of services, as the restrictions associated with the pandemic are relaxed.
In April, global trade volumes slowed to a pace of just 3% a year, and growth has likely slowed further since then.
Among the various indicators of world trade, container transport is the one that holds up the best, although the indicator has remained practically flat in the year. Other indicators send negative signals, air cargo volumes measured by IATA, fell 11% annual rate in April, and an alternative measure of BIG DATA systems, shows a drop of 7% annual rate in May.
The Sentix Confidence indicator, which has a historical association with trade trends, has plummeted to levels associated with sharp declines in world trade and economic downturns.
Some of the high-frequency indicators show worrying trends, copper prices, closely related to the industrial cycle, have tumbled in recent days and are far from their peak at the beginning of the year.
Shipping giant Maersk’s share price has fallen by more than 30% from its January peak, the declines comparable in size to those seen in early 2020, when the coronavirus crisis gathered speed.
A key factor in the weakening of world trade growth is the sharp rise in energy prices.
Since March, our reference price forecasts for oil have increased 12% for 2022 and 24% for 2023, for gas they have increased by 6% and 14%, and for coal prices 37% and 28 percent. These increases mean additional pressures on the purchasing power of consumers and upwards for trade costs, which means lower levels of consumption, investment and world trade.
In 2022, commodity prices are expected to be almost 70% higher than in 2020, an increase comparable to those observed in 1972-1974 and 2004-2008, associated with the sharp contractions in world trade in 1975 and 2009.
Business recessions have been associated with global economic downturns or periods of very low global growth. In 1958, 1975, 1982, 2009, and 2020, when there were trade downturns and global recessions, the global recession is defined as the overall decline in global GDP per capita.
At first glance, this does not bode well for the global economy as leading indicators suggest that trade volumes will decline in the near term.
