BONN, Germany – For the first time since its launch in January 2018, the DHL Global Trade Barometer indicates a slight contraction of worldwide trade for the next three months.
These losses led to an overall drop in the world trade outlook by eight points to a new index value of 48. This indicates world trade – forecasted by trade flows in intermediaries and early-cycle commodities – is expected to decline in the coming three months, albeit mildly.
The overall decline was driven by significant losses for both air and containerized ocean trade, which are the GTB’s two fundamental constituents. Air trade declined by six to 49 points, and containerized ocean trade fell eight points to 48 index points.
Sluggish trade momentum for several quarters in a row
The latest developments continue a downward trend which the GTB has been recording for several quarters since mid-2018. The current contraction is also the first one since 2015, when the GTB – which takes into account historical data from 2013 onwards – measured a more than a month-long decline of global trade volumes in the middle of the year.
“Amidst rising US-Chinese tensions, the slightly negative outlook for global trade for the third quarter of 2019 does not come as a complete surprise,” said Tim Scharwath, CEO of DHL Global Forwarding, Freight.
“The latest GTB clearly illustrates why trade disputes create no winners. Nevertheless, some major economies such as Germany continue to record positive trade growth. And from a year-to-date perspective, world trade growth has still been positive. Hence, we remain confident in our initial prognosis that 2019 will be a year with overall positive, but slower trade growth.”
Latest GTB results show negative effects of trade wars
“Growth is weakening in the key drivers of the world economy. Most macroeconomic and labor market indicators point to a cooling of U.S. growth and financial market sentiment has been hurt by trade tensions,” says Eswar S. Prasad, professor of trade policy and economics at Cornell University in Ithaca, New York.
“The Chinese government’s stimulus measures appeared to be stabilizing growth, but persistent trade tensions are again dragging down growth momentum in China. The German growth revival looks fragile while India’s growth has hit the skids, with rising doubts about the prospects of major economic reforms. A synchronized slowdown of the world’s major economies could affect trade volumes, if the uncertainty continues to dampen consumer demand and business investment.”
US-China trade conflict dragging down global trade momentum
As one of the parties involved in the current trade disputes, the United States saw by far the heaviest losses among all GTB index countries, with its outlook declining 11 points to 44. Those losses were mainly driven by a negative outlook for major export categories.
China scores second in terms of losses, declining seven points to 49 – an index value one point below stagnation. China’s negative outlook was primarily driven by declining imports in several categories, combined with just minor overall export growth.
While the trade dispute between the two countries has been a looming, growth-impending threat since the GTB’s launch in January 2018, it has never manifested itself as much as now in actual trade forecasts.
Given the US’s and China’s large contribution to the global index, their diminishing trade growth rates contribute significantly to the projected global decline. The still rather mild global trade contraction can be explained by the fact that during trade conflicts, trade flows do not merely dry out. Instead, trade routes and supply chains shift into other countries. On a global scale, this partly offsets the negative effects of trade tensions between countries.
UK trade unaffected by Brexit threat, Germany and India maintaining mild growth rates
In the wake of the overall weakened trade climate, three GTB constituent countries record slower trade growth forecasts while managing to stay above the level of stagnation: Germany registered a mere onr-point decline compared to the previous quarter and now scores 52, while India lost six points, resulting in an outlook of 53 points. The UK actually gains two points to reach an index value of 52.
Given the still unresolved Brexit uncertainties, this result looks somewhat counter-intuitive. It might be an indication that companies are increasingly stockpiling inventories in face of the risk of a hard Brexit at the end of October.
East-Asian economies with further weakening trade momentum
In addition to China, the East-Asian economies of Japan and South Korea record sluggish trade momentum. The index for Japan fell seven points to now sits at 50, which indicates stagnating trade dynamics. South Korea is the third GTB country with a forecasted decline in trade growth for the next three months: Having already dropped to 49 points in March 2019, the outlook for South Korea further declined three index points to 46.
The next GTB update will be released end of September.