World Trade: Still No Great Depression

Back in December, I pooh-poohed the IMF's warning that the world might be tipping back into a new 1930s-stye Great Depression by looking at what the global trade data was telling us (see Trade Data vs 'The New Great Depression'). I concluded that 'so far not only is the slowdown nothing like what happened at the end of 2008, but it's less dramatic even than the slowdown which accompanied the near-recession of 2000-2001.'

Three months later this is still the case. The hinge of world trade remains the extraordinarily close relationship between what the G3 imports (US, Eurozone, Japan), and what Northeast Asia exports (China, Japan, Korea, Taiwan). Usually, it's hard to slip a cigarette paper between their changes in momentum.  

We have data for G3 imports for January, which shows imports up 6.8% YoY in dollar terms (US up 10.1% YoY, Eurozone up 0.1%, Japan up 17.8%). We also have NE Asia's export data for January and almost all of it for February too (for Japan we are working from the first 20 days data). That shows exports up 12.1% YoY (China up 18.3% YoY, Japan down 1%, Korea up 20.6% and Taiwan up 10.3%). No doubt the February export data is flattered by the rebound from January's Chinese New Year, but the fact remains that the 6 months trendline for sequential momentum broke into positive territory in February for the first time since August. Moreover, February data from both Singapore and Taiwan suggests that the squeeze on electronics exports appears to have relaxed (see Shocks and Surprises, Week Ending March 18^th).

The chart below shows how the current situation differs both from 2008/09 (obviously) but also remains far better in both YoY terms and underlying sequential momentum than in 2000/01.  

One further note: whilst a better-than-expected trading environment will be welcomed by almost everyone, it does continue to shine a light on China's underlying problem – that increases in its market-share are now won increasingly expensively in terms of investment spending (see this piece). China continues to win market share, but only slowly now. Whilst my best forecast is that China can expect its export total to grow around 10% this year, this no longer matches the c19% growth in China's capital stock. In other words, even in these conditions export growth will no longer be sufficient to support asset turns, return on capital, and private sector cashflows.