World trade is continuing to recover
WORLD industrial production has overtaken its pre-recession peak – that is the key finding from one of the world’s most useful economic surveys, produced monthly by the Dutch Statistics Bureau. The Netherlands are a key hub for world trade; local statisticians are experts at crunching the numbers. Ian Harwood, chief economist at Evolution Securities, is one of the few in the City who monitors these crucial figures; it is high time others followed suit.
The Dutch surveys reveal that during the second half of 2008 and early 2009, world production and trade collapsed, partly because the crunch neutered the financing which underpins commerce and partly because of a slump in demand from firms for capital goods. Trade fell much more sharply than overall output and employment, which is one reason why export-orientated Germany (with no housing collapse and a small finance sector) suffered as much as Britain during the recession. The global plunge in manufacturing and trade was arrested in 2009 and subsequently reversed. World industrial production finally surpassed its March 2008 peak in May 2010, the most recent period for which figures are available; the geographical composition of world output, needless to say, has changed drastically: up in Asia, down in the UK and Europe. The world has recovered but power has shifted East.
World trade has also enjoyed a sustained recovery. Unlike actual production, however, total export and import volumes still remain just below their highs of early 2008.
There is plenty more evidence that trade continues to grow: the IATA monthly air traffic report for June shows that freight volumes rose again, and are now up by 27 per cent year on year. To put all these figures into perspective, total world trade has almost tripled since 1990, Harwood’s data show, as the world economy underwent the greatest period of wealth creation and integration in its history. Asian economies are leading the growth, but they are not the only ones: Latin America is buoyant and even the West has seen a breathtaking bounce-back in trade.
Speaking of which, some of the gloom about the US economy yesterday was overdone: while overall new durable goods orders fell for the second consecutive month as a result of volatility in aircraft orders, the key capital goods orders surprised by its strength. Capex orders rose 0.6 per cent last month and May’s gain was revised up to 4.6 per cent. The US is undergoing a private sector, corporate investment led recovery, even though consumer spending and the housing market remain subdued. In part, of course, this is because capital outlays were slashed sharply in 2008-09 and much pent-up demand therefore remains – especially in IT. However, the main reason is that companies are reasonably confident, despite the ambient gloom, and in an ultra-competitive marketplace they need to continue to spend on new technologies, computers, software and machines.
Yet major risks to the recovery remain. Excessively weak monetary growth figures in the US and Eurozone are a worry, and Western economies cannot go on with near-zero official short-term interest rates for ever. As some point, rates will have to rise and other forms of central bank liquidity will also have to be switched off. This process must be managed gently and carefully – it certainly cannot be delayed for ever.