Boz, Ε., Bussière, Μ. & Marsilli, C. (2014) “Recent slowdown in global trade: Cyclical or structural“, VoxEU Organisation, 12 November.
The past three years have witnessed a slowdown in global trade. This column shows that the slowdown was particularly pronounced in advanced economies, especially the Eurozone. In a panel of 18 OECD economies, most of the slowdown can be explained by cyclical factors. However, structural factors – global value chains and especially protectionism – may have played a role too.
Introduction
Global trade started to slow down markedly in the course of 2011, after it bounced back from the Great Trade Collapse of 2008–2009.1 In 2012 and 2013 the growth rate of global trade volume reached only 3%, against nearly 7% in the pre-crisis period (2002–2007) and 6.8% in the period 1985–2007 (Figure 1). A remarkable observation about the slowdown is that world trade has actually grown at a slower pace than world GDP in these two years, whereas in the pre-crisis period global trade was growing more robustly than world GDP (Figure 2).2
This raises the question of the factors behind the global trade slowdown. In particular, it is important to properly disentangle the role of cyclical versus structural factors, given that they have very different implications for the outlook. If the slowdown merely reflects that of economic activity, which was very weak in recent years, then the projected pick-up in output growth should result in a rebound of trade flows. However, the slowdown in trade could also reflect deeper, structural factors, such as a rise in protectionism or a change in global production schemes throughout the world. If such factors are at play, the dynamics of global trade and GDP could change permanently, and rule-of-thumb elasticities commonly used for global forecasts may no longer be accurate.
Figure 1. World trade in goods
Relevant posts:
- Roubini, N. (2014) “The Single-Engine Global Economy“, Social Europe Journal, 04 November.
- Hugh, E. (2014) “Does The Secular Stagnation Theory Have Any Sort of Validity?“, A Fistful of Euros: European Opinion Blog, 20 October.
- Ferrantino, J. M. & Taglioni, D. (2014) “Global value chains in the current trade slowdown”, VoxEU Organisation, 06 April.