For two decades the rate of growth of world trade volumes considerably outstripped that of industrial production as credit-fueled globalization created huge imbalances in the world. As Diapason Commodities' Sean Corrigan indicates in these three simple charts, all that vendor-financed circular exuberance has come to an end. The bottom-line is that forced deleveraging (not least of which in Europe) is crushing the credit-fueled (and unsustainable) dream of endless growth as debt saturation has been reached (on private and now public balance sheets). To wit: Global Trade Volume growth is deep in the danger zone and about to turn negative; as the hopes of so many Sinomaniacs and Pollyannas is slowly peeled back to a righteous recognition of reality.
The ratio of Global Trade Volumes to Industrial Production remained in a relatively stable uptrend as imbalances fueled by credit averaged 3.4% annually more trade than production. All that ended when whatever Keynesian Endpoint or Debt Saturation barrier we hit in 2008 and the impossible was proclaimed entirely possible.
What this means - simply - is that without credit expansion, world trade volumes are decelerating rapidly.
With Europe on a path to considerable deleveraging (as is clear below)...
...things do not look set to get better any time soon - and expectations for world trade to enter contraction any minute now is highly likely.
And as Sean Corrigan notes - on the dreams of China saving the day once again:
The minor uptick in China’s ‘flash’ PMI estimate for October – from 47.9 to 49.1 ? has sparked the usual explosion of uncritical hopefulness (on the part of those who, by and large, thought there never could be a slowdown under the aegis of the all?powerful CCP to begin with,) that this finally marks a bottom in that country’s economic cycle.
In giving vent to such optimism, the Sinomaniacs conveniently overlooked the fact that much of the improvement was down to the fact that it was the price indices, rather than those relating to output or employment, which struggled back above the expansion/contraction threshold of 50 – a circumstance which might just temper their extend?and?pretend expectations of an ever imminent monetary relaxation, were they to reflect on it for a moment between jubilations.
Worse still, the Pollyannas appear to have forgotten that the PMI simply gauges whether things are generally better or worse than they were last month – and that in a non?quantitative manner, to boot. The unequivocal answer is worse (if marginally so, this time) for the twelfth consecutive month and for the fifteenth out of the last sixteen occasions. Thus, it may be true that the rate of decline seems to have slowed – how enduringly, only time will tell ? but the fact of that ongoing decline itself remains, even after so many uninterrupted months of economic deterioration.
China bulls and the other assorted, ?next quarter? blue?skyers may have either venal or psychological reasons to puff this one reading , but the test of an analyst who knows his stuff – and who is not afraid to be honest with you ? is whether he makes this simple, but crucial, distinction in his commentary.
and on extrapolating this recent China growth, Michael Pettis has a few words:
If you want to make economic predictions, in other words, whereas a long historical view will be very useful because it allows you to consider the dislocations created by a reversal of unsustainable imbalances, recent economic data are largely useless, as are predictions based on linear adjustments of recent economic data. Instead of projecting from past data you must model the various paths by which rebalancing can occur, and your prediction must be limited to those paths.