Slowdown in world trade growth not as bad as it looks

The sharp slowdown in trade growth since the start of the year partly reflects the weakening in the world economy in the first quarter. However, trade has also been depressed by a series of temporary factors over the past few months which are likely to be reversed soon.

Data released today by the CPB Netherlands Bureau show that world trade volumes fell by 0.1% m/m in March, the third consecutive monthly decline. This pushed the three-month y/y growth rate down to 2.3%, its weakest since July 2013.

The growth of exports from emerging economies has slowed particularly sharply since the start of the year. However, this was entirely because of a large decline in exports from emerging Asia. Export growth in other emerging market regions actually accelerated quite sharply.

The fall in exports from emerging Asia in March reflects the unusually late timing of the Lunar New Year, which depressed China's exports in that month. That said, the small rebound in China's export values in April does suggest that weaker global demand has also played some role.

The growth of exports from advanced economies has remained subdued. In the US, the resolution of the West Coast port dispute caused imports in March to jump as ports began working through their backlogs.Even allowing for a weaker dollar, this surge in US imports will not be sustained which means that the trade deficit should narrow again in the coming months.

The flipside of the stronger dollar has been a weaker euro. Exports from the euro-zone picked up a little in March, suggesting that the euro's depreciation over the past year is finally starting to have the intended effect.

Looking ahead, survey measures of export orders have weakened in recent months, although they remain consistent with faster growth in trade volumes.

More positively, the US Senate voted to close the debate on the "trade promotion authority" bill, which would authorise President Obama to directly negotiate trade deals. This suggests that the bill is close to passing, although it will also require approval from the House of Representatives. It is still possible that negotiations on the Trans-Pacific Partnership are concluded before the US Presidential election campaign gets underway next year.

According to Standard Chartered,there are good reasons to expect trade growth to accelerate once again.

• First, regional trade agreements could yet usher in a wave of trade and investment.
• Second, there is plenty of scope for India and parts of Africa to integrate more deeply into the world economy.
• Third, technological change will continue to lower transport costs and enable trade in a greater share of goods and services.

So although world trade has expanded by less than global GDP over the past few years, we doubt this will persist in the decades ahead.