Despite Donald Trump’s attacks on free trade, world trade has been on a roll since his election. A favourable phase in the global economic cycle has been driving the recovery. This is likely to continue as the outlook for the world economy in 2017 remains positive.
World trade in volume terms has recovered from the setback in February, with monthly growth in March at 1.5%, according to today’s data release from The Netherlands Bureau for Economic Policy Analysis (CPB). During the first three months of 2017 trade increased 1.4% QoQ.
World trade is currently being pushed up by a favourable phase in the economic cycle in most of the world’s largest economies. This is likely to continue as the outlook for the world economy in the remainder of 2017 is positive. The US economy suffered a setback in 1Q, making it the odd one out with a 1% decline in import demand in March. ING expects this to be a blip and forecasts the US to return to trade growth in the remainder of the year, on the back of accelerating economic growth.
The recovery in the Eurozone is, although not spectacular, firm footed and resulting in steady import growth. Given the over representation of the euro area in world trade, it will remain a driver for trade recovery during the rest of the year. The improved outlook for China over the last couple of months is also contributing to the current positive flow for trade. The large setback for Japanese imports in February (-5.2%) turned out to be a blip and no structural setback, with growth of 4.3% in March.
The broad-based nature of this economic upswing is the reason for world trade witnessing its fastest growth since 2010.
The current revival will not lead to a return to growth rates world trade enjoyed prior to the crisis. Economic momentum is favourable but has its limits. Both in the US and the Eurozone, potential growth is held back by sluggish productivity growth and a return to the Chinese growth rates in the years running up to the financial crisis is unlikely with the maturing of the economy.
Source: ING Wholesale Banking