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THIRD WORLD RESURGENCE

Sluggish world trade heightens global slowdown

World trade is shrinking as a consequence of the global downturn and in turn it is further fuelling the process.  Chee Yoke Heong surveys the dismal scene.


WORLD trade recorded a sharp contraction in 2015, further fuelling concerns that the global economic malaise may worsen for this year.

Citing figures from the Netherlands Bureau of Economic Policy Analysis's World Trade Monitor, the Financial Times (FT) reported that international trade in goods last year fell 13.8% - the first contraction since 2009 - due largely to the slowdown in China and other emerging countries.1

The fall in the value of both exports and imports in world markets last year was also attributed to currency swings and a collapse in the price of commodities. The Baltic Dry index, which measures global trade in commodities, has hit record lows, according to the FT.

The US saw the value of its exports fall 6.3% in 2015 while the value of exports from Africa and the Middle East collapsed 41.4% mainly because of the sharp fall in the price of oil.

China, the world's largest trading nation, reported double-digit falls in both exports and imports in January. The trend extended to February, with Chinese exports down by 25.4% from a year earlier, while imports declined by 13.8%. Its exports to Brazil, which is experiencing a serious recession, have collapsed.

'What we are seeing right now from China is not only a phenomenon for Brazil; we are seeing the same all over Latin America, declining [Chinese export] volumes into all the markets,' Antonio Dominguez, managing director for Maersk Line in Brazil, Paraguay, Uruguay and Argentina, was reported as saying. 'It has been going on for several quarters but is getting more evident as we move into the year [2016].'

An economist from Capital Economics concurred, warning that the outlook going forward is bleak as indicators suggest that trade growth will remain very weak, the FT reported.

This phenomenon is largely due to the collapsed prices of commodities such as oil and the strength of the US dollar, or rather the weakness of certain other currencies, particularly the euro. It didn't help that since last year, the Chinese yuan has weakened against the dollar as well. Thus exports and imports from and to China, measured in dollars, have crashed further than when measured in yuan.2

These worrying figures come amidst concern over the dangers looming over the global economy, with warnings that the world is facing a stagnation if not low growth phenomenon.  

Following the release of figures showing a significant decline in Chinese and global trade, the International Monetary Fund (IMF) has again warned about the further weakening of the global economy.   

The first deputy managing director of the IMF, David Lipton, said that it was 'most disconcerting' that the rise in 'risk aversion' was leading to a 'sharp retrenchment in global capital and trade flows', according to wsws.org.3

He noted that emerging markets experienced a capital outflow of $200 billion last year compared to a net inflow of $125 billion in 2014. 'Trade flows meanwhile are being dragged down by weak export and import growth in large emerging markets such as China, as well as Russia and Brazil, which have been under considerable stress,' he said.

'The IMF's latest reading of the global economy shows once again a weakening baseline,' he said. 'Moreover, risks have increased further, with volatile financial markets and low commodity prices creating fresh concerns about the health of the global economy.'

In its latest World Economic Outlook report, released in April, the IMF has once again revised downward its projection for global growth. It now expects the world economy to grow by only 3.2% in 2016, down from the 3.4% projection made in January.4 This latest reduction is reported to be the fourth straight cut in a year.

The weak growth environment is attributed to the sharp fall in oil and other commodity prices, the slowdown in China, deep recessions in Brazil and Russia, weak growth in some Latin American and Middle Eastern countries, particularly those hit hard by the oil price decline and intensifying conflicts and security risks, and diminished growth prospects in many African and low-income nations due to the unfavourable global environment.

This vulnerability is expected to increase as the dangers to the Chinese economy deepen.

China's economy continues to slide, as indicated by the announcement in April that growth grew at an annual rate of 6.7% in the first quarter of 2016, down from 6.8% in the previous quarter, marking its weakest growth in seven years.5

The slowdown is also borne out by data showing that both manufacturing and services in China have hit their lowest levels since the 2008 global financial crisis.6

The official purchasing managers' index (PMI) in manufacturing dropped to 49 in February from 49.8 the previous month - 50 indicates the boundary between expansion and contraction. The PMI for the services sector dropped to 52.7 in February, its lowest level since December 2008.

The official manufacturing PMI has now fallen for seven months in a row and the privately run Caixin PMI has also declined, with employment numbers having fallen at the sharpest rate since January 2009 as companies look to downsize in order to cut costs.

Moving forward, job cuts are set to deepen, especially in the state-owned companies, the heart of China's industrial economy. According to the minister of human resources, Yin Weimin, about 1.8 million workers in the steel and coal industries could lose their jobs due to downsizing.

The situation is no better in the world's largest economy. According to a study by a University of California-Berkeley economist, at the current slow rate of job growth, entire regions of the United States which were hit hardest by the Great Recession will not return to 'normal' employment levels until the 2020s. This amounts to 'more than a "lost decade" of depressed employment' for 'half of the country'.7

The labour-force participation rate fell to a 38-year low of 62.4% last year, and only climbed up to 62.9% in February 2016. According to the Economic Policy Institute, February's official jobless rate of 4.9% would really be 6.3% if the country's 'missing workers', which include 2.4 million workers who were not actively looking for work, were included.8

Absence of action

The lack of commitments by the G20 at its recent meeting to take the appropriate actions to stimulate productivity and growth was also a disappointment to many who were hoping that the group would be bold enough to take measures that would boost the health of the global economy.

Instead the G20 meeting was characterised by the efforts of every country trying to blame every other country for the worsening state of affairs while proposals for cooperation did not even make it onto the agenda of the meeting, said wsws.org.

The IMF's Lipton said it was 'imperative' that advanced and developing countries revive 'the bold spirit of action and cooperation that characterised the early years of the recovery effort' in order to set the global economy on the road to recovery.

Otherwise, the absence of real political will to create stimulus will result in 'a secular stagnation' or prolong anaemic growth 'in a world that is one major adverse shock away from a global recession', the former US Treasury Secretary Lawrence Summers has reportedly warned.9   

Chee Yoke Heong is a researcher with the Third World Network.

Endnotes

1.    Donnan,  S. and Leahy, J. (2016, 26 February). World Trade Records Biggest Reversal Since Crisis. Financial Times. Retrieved from https://next.ft.com/content/9e2533d6-dbd8-11e5-9ba8-3abc1e7247e4

2.    Smith, Y. (2016, 27 March). World Trade Collapses in Dollars, Languishes in Volume. Naked Capitalism. Retrieved from http://www.nakedcapitalism.com/2016/03/wolf-richter-world-trade-collapses-in-dollars-languishes-in-volume.html

3.    Beams, N. (2016, 10 March). IMF Issues New Warning on Global Economy. wsws.org. Retrieved from https://www.wsws.org/en/articles/2016/03/10/econ-m10.html

4.    IMF Survey. Global Economy Faltering from Too Slow Growth for Too Long. Retrieved from http://www.imf.org/external/pubs/ft/survey/so/2016/NEW041216A.ht

       ml

5.    Chu, B. (2016, 15 April). The Charts That Show How Chinese Growth Is Trending Down - and Might Be Even Worse Than We're Being Told. The Independent. Retrieved from http://www.indep

       endent.co.uk/news/business/Leading_business_story/the-charts-that-show-why-chinese-growth-is-trending-down-and-might-be-even-worse-than-we-re-being-a6985501.html

6.    Beams, N. (2016, 2 March). Chinese Slowdown Continues Amid Plans for Major Job Cuts. wsws.org. Retrieved from https://www.wsws.org/en/articles/2016/03/02/chin-m02.html

7.    White, J. (2016, 21 March). New Study Says Entire Regions of US Will Remain in Slump Until the 2020s. wsws.org. Retrieved from http://www.wsws.org/en/articles/2016/03/21/econ-m21.html

8.    Ibid.

9.    Savio, R. (2016, 15 March). Are We Entering into a Long Term Stagnation? Inter Press Service. Retrieved from http://www.ipsnew

       s.net/2016/03/are-we-entering-into-a-long-term-stagnation/

*Third World Resurgence No. 307/308, March/April 2016, pp 28-29


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