World economy still crawling

by Michael Roberts

An important indicator of how the world economy is doing is the pace of increase in world trade.  In periods of expansion, the growth in the volume of world trade is much faster than the growth in world real GDP. That allows each capitalist economy to expand output through exports if domestic demand or profitability is insufficient.

In the 15 years from 1992 to the point of the Great Recession, average annual growth in world trade was nearly double that of average growth in world GDP (figures from IMF economic database). However, since the Great Recession, world trade growth has been about the same as real GDP growth. This means that the major economies are now unable to export their way out of the slump.

In the global slump of 2008-9, world trade fell at a 20% yoy rate and then initially recovered at a similar rate. But that jump back has quickly dissipated. In 2014, world trade has started weakly. In February, world trade actually contracted 0.7% compared to a rise of just 0.2% in January (figures from World Trade Monitor, CPB Netherlands Bureau for Economic Policy Analysis).

The key motor for global trade has been Asia, particularly China. However, Asian exports have declined for three straight months and, in February, Asia’s imports also fell. There has been a clear slowing in world trade growth from an average of 7% a year before the global slump to about half that rate now.

One of the features of 2013 was a pick-up in economic activity in the major developed capitalist economies in Europe and the UK, but that was accompanied by a slowdown in the major emerging economies, like China, Brazil and India.  And emerging economies now contribute nearly half of world annual output.
Since the start of 2014, the business activity indexes (called PMIs) suggest that growth in the developed economies has tapered off. Sure, as my last post showed, the UK economy has accelerated from stagnation in early 2013 and the Eurozone economies have also got off their knees, but the pace of that pick-up is waning. The graph below shows that the world economy is still growing (i.e. the activity index is over 50), but it is now decelerating, particularly in emerging economies (figures compiled by me from Markit PMI data).

World trade is contracting and world economic activity seems to have peaked – not a great sign that the global crawl is over.