​The end of the affair: Have trade and GDP growth uncoupled for good?

Being a demand derived of world trade, shipping is more sensitive to economic growth and decline than many other industries. For proof, look no further than how shipping (particularly bulk carriers) thrived during China’s period of rapid economic growth and infrastructural buildout in the years up to 2008. And, as London International Shipping Week (LISW) heard, the kind of rapid economic growth and development seen by China in the boom is unlikely to be seen ever again. What does this mean for shipping?

We used to say that trade grew two or three times faster than world GDP and for years this was true, but trade growth appears to have slowed and has fallen behind economic growth. Dr Liam Fox, the UK’s secretary of state for international trade and president of the board of trade, stated that the global economy is growing at 2.5% but trade growing at 1.5% in his address to the LISW conference.

This is a trend that has been seen for the past four consecutive years, and is the first time in half a century that such a pattern has been sustained for so long. The ratio of trade growth to GDP growth fell below 1:1 in 2016, for the first time since 2001, according to the WTO. The question is: is this a new paradigm?

Jan Hoffmann, chief of UNCTAD’s logistics branch, thinks not. Trade growth fell behind GDP for during the 1980s, he told LISW attendees, but we need more information to explain the recent slowdown.

The thought (currently) is that the lag in trade growth is due to the rise in service provision’s contribution to the global economy, as opposed to trading goods and commodities. As the world becomes increasingly dependent on technology and digitalisation, its economy is becoming fuelled more and more by the rise of industry that deals in “bits and bytes”. If this is so, then we can expect this trend to become even more long-lived.

But the thing about economists and their rich data sets is that there is room for interpretation and argument. Willem Buiter, Citigroup’s global chief economist, observed that Dr Liam Fox was citing 2016 figures for growth in trade and GDP growth. During the first two quarters of 2017, said Buiter, global growth was 3.1%, which is once again being outpaced by trade growth.

Looking ahead, the WTO expects trade growth in 2018 should pick up slightly to between 2.1% to 4.0%. The organisation forecasts global GDP growth will rise to 2.7% this year.

Although export orders and container shipping have been strong in the early months of 2017, trade recovery could be undermined by policy shocks, the WTO has said. Policy uncertainty is the main risk factor, including imposition of trade restrictive measures and monetary tightening.

There are wider macroeconomic influences at work too. The weak trade growth seen in 2016 was due in part to cyclical factors as economic activity slowed across the world, but the slowdown also reflected deeper structural changes in the relationship between trade and economic output. Investment spending slumped in the United States and as China continued to rebalance its economy away from investment and toward consumption, which weakened import demand from these trade-intensive national economies.

The nature of trade, it seems, is undergoing a period of adjustment. Just look at how demand on major container lines’ traditional East-West strings has been eroded over the past few years. Instead, the real opportunities for trade and therefore shipping seem to lie increasingly in intra-continental business and providing transport services for non-OECD countries. “The future is 200 small countries around Africa and Asia,” Willem Buiter told the LISW conference. “It needs a different sort of shipping service altogether.”

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