Netherlands Bureau for Economic Policy Analysis (CPB) Survey
July Goods Trade Volume Down 3.2% Year-on-Year
In July of this year, the scale of global trade shrank at the steepest rate in about three years since the COVID-19 pandemic. Analysts attribute this to consumers tightening their wallets amid signs of economic slowdown caused by worldwide high interest rates.
According to the Netherlands Bureau for Economic Policy Analysis (CPB) on the 2nd, global merchandise trade in July decreased by 3.2% compared to the same period last year. Not only was the decline larger than the previous month (-2.4%), but it also marked the sharpest slowdown in about three years since August 2020, when COVID-19 was at its peak.
Trade volumes decreased in most major countries, including China. China, the world's largest merchandise exporter, saw a 1.5% drop in trade volume in July. The Eurozone and the United States experienced declines of 2.5% and 0.6%, respectively.
The contraction in global trade appears to be the result of rising inflation and the consequent high-intensity tightening policies by major countries. As prices soared, the U.S. Federal Reserve (Fed) raised its benchmark interest rate by a staggering 5.25 percentage points in just a year and a half since March last year, with other countries following suit in tightening. Countries that lifted COVID-19 lockdowns and transitioned to an endemic phase reportedly increased spending more on domestic services than on goods. This led to reduced purchasing power, which in turn caused a contraction in trade volume.
The market expects global trade volumes to remain weak over the coming months. The S&P Global Purchasing Managers' Index (PMI), which tracks new export orders, showed sharp contractions in August and September in the U.S., Eurozone, and the U.K. Furthermore, with high interest rates expected to persist, global growth is likely to slow, and the phase of reduced purchasing power may continue. The Organisation for Economic Co-operation and Development (OECD) also lowered its 2024 global economic growth forecast by 0.2 percentage points from 2.9% to 2.7% in its mid-term economic outlook report released on the 19th. It cited the tightening policies of various countries and a less-than-expected economic rebound in China as reasons for the slowdown in global economic growth.
Arian Curtis, Global Economist at consulting firm Capital Economics, said, "The ongoing impact of high interest rates may further suppress demand for certain goods," adding, "It may take a few more months before the scale of global trade bottoms out."
Mohit Kumar, Economist at investment bank Jefferies, predicted, "Major economies will slow down over the next few quarters," and added, "Trade is likely to follow the trend of global economic growth going forward."
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