World trade continues to contract despite industrial production rise - ING

Daniel Bosgraaf, Economist at ING, suggests that the world trade growth has been lacklustre for years and this month is no different as we now have three months of consecutive contraction of world trade.

Key Quotes

“World trade has contracted again in May. The volume of trade in goods fell by 0.4% MoM in May, according to data released today by The Netherlands Bureau of Policy Analysis. Since the figure for April has also been revised down to -0.3%, May was the third consecutive month that world trade fell. A three month streak of contracting trade has not happened since 2008. Also, trade momentum, a less volatile measure of trade growth is now clearly in the red (-0.8%).

The deterioration is uneven. Advanced economies have seen both their imports and exports decline 0.7%, with imports strongly suffering from a drop in US demand of 3.2%. Emerging market imports actually increased 3.3% and exports lost 0.8%, mainly on the back of a reduction of exports from Latin America of 3.4%.

While world trade declined, global industrial production grew 0.4% in May. In contrast to disappointing world trade growth, this marks the third consecutive month of global industrial production growth. Emerging economies industrial output increased 1.3% while advanced economies saw a contraction of 1.0%. The biggest loser was Japan, which saw its industrial production fall 2.6%. The biggest winner: Asia’s emerging economies have had an increase of 2.1%.

While industrial production has been a strong predictor for world trade, the different directions of world trade and industrial production lead us to doubt their traditional link. Indeed, trade decreasing trends such as increased protectionism, re-shoring and greenfield investment for domestic demand and a slowdown of global value chain expansion weigh heavily on world trade.”