Shifting, slowing world trade

A few recent developments highlight some of the challenges facing global trade flows.  Last week, Danish shipping and logistics giant AP Møller-Maersk reported revenues 40% lower than last year, with profits down ~70%, on weaker shipping volumes and prices. 

Maersk forecast that global container demand would contract by 1% to 4% this year, marking down its previous forecast on reducing inventories and weaker consumer demand.  Maersk’s performance is a useful barometer of the strength of global flows; shipping container movements are a good proxy for world trade.  Maersk’s share price is down by about one third from its pandemic highs, although it remains well above its pre-Covid levels. 

Alongside this muted outlook, China’s export and import growth data on Wednesday were worse than expected.  Chinese exports shrank by 14.5% in the year to July; and imports contracted by 12.4%, reflecting an anaemic Chinese economic recovery.  China is not alone: export growth across many exporting powerhouses in Asia (Singapore, Japan, Taiwan, South Korea) has also moved into negative territory, broadly in line with China.

This weakness is reflected in China’s inflation data, out this week.  China’s PPI inflation (discussed recently here) continues to decline, to -4.4% in the year to July.  And headline CPI inflation moved into negative territory at -0.3% in the year to July.  China is now exporting deflationary pressure to the world.

Other measures of global flows reflect a similar story.  Last week’s CPB world trade index (data to May) shows a weakening of world trade volumes, particularly from advanced economies.  As the world’s largest exporter, China’s weakening export growth will weigh on this index over the coming months.  And last week’s release of the global supply chain pressure index shows ongoing easing after surging through the pandemic, as international container shipping prices reduce and port delays and congestion ease.   

Explaining slowing global trade

Many of these global trade dynamics are cyclical in nature, reflecting a slowing global economy.  And there is a post-Covid normalisation process underway in world trade after strong performance through the pandemic, partly due to surging demand for durables.  An industrial recession has emerged as patterns of consumer demand normalise after the pandemic, leading to reduced (heavily traded) industrial production. 

The full note is available at: https://davidskilling.substack.com/p/shifting-slowing-global-trade