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Global Trade Is "In The Doldrums", BofAML Says

Tyler Durden's picture




 

We’ve spent a considerable amount of time discussing trends in global trade lately, touching on slumping metals demand and collapsing exports in China, sharp decreases in dry bulk trade, a prolonged period of depressed freight rates, and the emergence of a worldwide deflationary supply glut. 

For their part, Goldman thinks China’s transition to a consumption-led economic model will be a drag on trade for years to come. “There are no other markets large and/or dynamic enough to offset a slowdown in China in the foreseeable future, and we forecast trade volumes to stabilize in the period to 2018,” the bank said, in a note out earlier this month. 

 

As a reminder, here is our summary of the situation in China:

Meanwhile, we’ve exhaustively documented the laundry list of signs that point to dramtically decelerating economic growth in China, including falling metals demand, collapsing rail freight volume, slumping exports, a war on pollution that may cost the country 40% in industrial production terms, and, most recently, a demographic shift that’s set to trigger a wholesale reversal of the factors which contributed to the country’s meteoric rise. All of this means that the world’s once-reliable engine of demand is set to stall in the years ahead. 

Supporting the notion that global trade is severly impaired— an assertion we made back in March after observing a double-digit decline in freight rates from Asia to Northern Europe — is a new note from BofAML who offers the following unambiguously bad assessment: “Global trade of goods and services has been in the doldrums, and the poor streak seems to be extending into the second quarter.”

Here’s more:

Global trade of goods and services has been in the doldrums, and the poor streak seems to be extending into the second quarter. First-quarter GDP reports in the US and Germany showed surprisingly weak export growth, and the healthier run in Japanese exports has also cooled. In emerging markets, real exports have been expanding faster in Eastern Europe and Latin America but have been treading water in Asia.

 

Is global trade wobbling due to feeble activity growth, or are structural issues to blame? The question has been recurring since 2011, when the ongoing soft patch began. If mostly cyclical in nature, trade growth could be expected to pick up once global GDP accelerates. But if predominantly structural, then EM economies should not count on meaningful demand boosts coming from above-trend growth in DM. With Fed rate hikes looming, a jammed trade channel means less growth offsets to the anticipated tightening in financial conditions.

 

The income elasticity of global trade has indeed been declining, pointing to diminished trade spillovers. In particular, there has been a marked change in Asian supply chains in response to a maturing Chinese economy. 

 


 

And on import growth as a leveraged play on GDP growth:

The 10-year average of world import growth as share of GDP growth reached 2.2 in 2000, but the ratio has since entered a sustained decline. In 2014, global imports picked up only 1.2 times as much as global GDP growth. Unfortunately for trade-sensitive economies, global trade is no longer amplifying the pace of global activity.

 

What is behind the drop in the income elasticity of global trade? It could reflect the changed composition of global final demand, more reliant on consumption rather than on export-intensive capex growth. 

 

 

What this appears to suggest is that DM demand may be structurally (i.e. permanently) impaired which is bad news for export-driven economies (like China) and serves to underscore what we've been saying for quite sometime — namely that global trade has slowed to a crawl and may soon stall out altogether. 

 

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Fri, 05/15/2015 - 17:47 | 6098873 Tinky
Tinky's picture

"Doldrums"

Orwell would be proud.

Fri, 05/15/2015 - 17:51 | 6098881 LawsofPhysics
LawsofPhysics's picture

nice catch Tinky.  It will be missed by most.

Allow me to simplify...

https://search.yahoo.com/yhs/search?p=you+fucked+up%2C+you+trusted+us&ei...

retribution is going to be a motherfucker....

Fri, 05/15/2015 - 17:53 | 6098888 Leveraged Algorithm
Leveraged Algorithm's picture

I'll bet the Merrill Lynch mob is recommending going to cash to avoid the fall...  Bunch of fuck nuts.

Fri, 05/15/2015 - 17:56 | 6098901 LawsofPhysics
LawsofPhysics's picture

One, of many, big lies that has been propagated for decades is that the French "gave up" during WWII.

Debt, and monetary paper, always increase prior to war.  It makes sense as there really is no monetary, economic, fiscal, or political solution to scarcity.

Fri, 05/15/2015 - 18:07 | 6098934 knukles
knukles's picture

So, trade is in the doldrums because of the anticipated tightening of monetary conditions.
Kinda like my stomach ache has gone away because I know I'll be able to poop tomorrow.

                     sitting, wiggling on chair like Stevie Wonder, making strange sounds

 

Fri, 05/15/2015 - 18:13 | 6098940 ZerOhead
ZerOhead's picture

Let's all pitch in to help global trade by buying silver. Since there was only 877 Million ounces produced last year that's just over 1/10 of a ounce per person on the planet. Please limit your purchases accordingly.

Supply & Demand | The Silver Institute

Remember... Let's NOT be making pigs of ourselves.

Fri, 05/15/2015 - 18:47 | 6099053 LawsofPhysics
LawsofPhysics's picture

Great question. What sort of supply is required to maintain a high standard of living for 7+ billion people?

Fri, 05/15/2015 - 19:15 | 6099121 Bob
Bob's picture

Not that the trust angle isn't true in its way, but I gotta say that the "China" phenomenon was driven by "American" multinationals taking advange of the deep savings they engineered in their partnerships.  They are not really American, though, and neither are the Chinese "Industrialists" and "Investors" involved actually Chinese in the way you mean.  The have all dropped their gains into untouchable domains, after all.  Their allegiance is to their money.  Their only allegiance. 

There are no nations for the neoliberal NWO freaks who run the show now. 

So trust between "nations" is an antiquated concept, at best. 

I miss the good old days when it didn't seem to be like that!

Fri, 05/15/2015 - 18:10 | 6098941 ZH Snob
ZH Snob's picture

stagflation at its finest.

Fri, 05/15/2015 - 18:43 | 6099044 Ruffmuff
Ruffmuff's picture

My ponzi trading techniques are not yet developed.  Free trade or trade for free, don't matter much.

Fri, 05/15/2015 - 18:04 | 6098920 Mini-Me
Mini-Me's picture

"With Fed rate hikes looming..."

Yeah, I'll believe it when I see it.  The most we'll see is a piddly 25 basis point move, followed by a Wall Street tantrum, and a cratering of the housing bubble (again).  There goes the bogus wealth effect the counterfeiters have been nurturing for the last 15 years.  

The fact that their mad monetary manipulations have been abysmal failures in fostering legitimate economic growth never stops the Fed morons (a redundancy) from trying more of the same. They're always wrong, but never in doubt.

Fri, 05/15/2015 - 18:31 | 6099003 itstippy
itstippy's picture

"With Fed rate hikes looming..."

As if a 0.25% increase in the Federal fund rate will have any impact whatsoever on consumer demand in the developed economies.  We're already used to massive price swings in retail goods & services (mostly up), and have been for decades.  

A 0.25% increase by the Fed is only a problem for massively over-leveraged financial leviathons.  It's bullshit to say it would affect consumer demand.  Economies don't work that way.

Fri, 05/15/2015 - 21:54 | 6099068 Fahque Imuhnutjahb
Fahque Imuhnutjahb's picture

Unless the massively over-leveraged financial leviathons decide to take their losses out of our hides.  Hiking rates could exacerbate a deflationary condition, increasing the buying power of fiat, which many of the before mentioned leviathons have beacoup quatities of in the form of excess reserves held by the FED.  When the time is right they can deploy those reserves to acquire hard assets (on the cheap), thus injecting the money into the veins of the economy.  Over time inflation will heat up raising asset prices allowing afore mentioned leviathons to off load for a profit, which should offset losses incured from intrest rate hikes.  The stickier issue will be  not allowing rates to rise to the point where the Treasury (us), cannot service our debt; but the leviathons own much of that debt, so their revenue stream is assured;  they just want to feed on the host, not kill it.

Fri, 05/15/2015 - 18:39 | 6099036 Zen Master
Zen Master's picture

Rapped up in 5 seconds

https://youtu.be/D4fygWLjszA

Fri, 05/15/2015 - 19:05 | 6099097 Bob
Bob's picture

That was great.  China turning inward economically would be a fundamental transformation of the global economy. 

Financialization accounts for fictitious GDP growth in "developed" economies, imo, so the game is gonna get veeery tough round here in the good ole USA.  Fed's outta bullets, after all . . . not that they ever had the slightest interest in using them correctly anyway--from either a financial or moral perspective.

Fri, 05/15/2015 - 19:58 | 6099200 New_Meat
New_Meat's picture

JFC: they fired Rosie and then have newbiez doing the same crap with less reasoning and more fog? - Ned

Sat, 05/16/2015 - 02:46 | 6099857 Wild Theories
Wild Theories's picture

they forecast trade volume to stabilise in 2018?

I forecast everyone, no matter where they live, myself included, will be feeling real economic pain by 2018.

you can only hide the real economy with fake financialized BS for so long, I doubt it would get past public perception by 2018.

 

and I'm reminded of this again:

"when trade and goods stop crossing borders, soldiers will"

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