DHL trade barometer points to further decline

DHL's Global Trade Barometer (GTB) June
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DHL’s Global Trade Barometer (GTB), points to the first contraction since its launch in January 2018, forecasting a ‘mild’ drop in global trade for the next three months.

The index points to an overall drop in the world trade outlook by -8 points, to a new index value of 48. According to DHL, this means world trade – forecasted by trade flows in intermediaries and early-cycle commodities – is expected to decline in the coming three months, “albeit mildly”, it adds.

The overall decline was driven by significant losses for both air and containerised ocean trade, which are the GTB’s two fundamental constituents. Air trade declined by -6.0 to 49 points, and containerised ocean trade by -8.0 points to 48 index points.

DHL says the latest developments “continue a downward trend which the GTB has been recording for several quarters since mid-2018.” The current contraction is also the first one since 2015, when the GTB – which takes into account historical data from 2013 onwards measured more than a four month-long decline of global trade volumes in the middle of the year.

Commenting on the latest forecast, Tim Scharwath, CEO of DHL Global Forwarding, Freight, says: “Amidst rising US-Chinese tensions, the slightly negative outlook for global trade for the third quarter of 2019 does not come as a complete surprise.

“The latest GTB clearly illustrates why trade disputes create no winners. Nevertheless, some major economies such as Germany continue to record positive trade growth. And from a year-to-date perspective, world trade growth has still been positive. Hence, we remain confident in our initial prognosis that 2019 will be a year with overall positive, but slower trade growth.”

Eswar S. Prasad, Professor of Trade Policy and Economics at Cornell University in the US, comments: “Growth is weakening in the key drivers of the world economy. Most macroeconomic and labor market indicators point to a cooling of US growth and financial market sentiment has been hurt by trade tensions.

“The Chinese government’s stimulus measures appeared to be stabilising growth, but persistent trade tensions are again dragging down growth momentum in China.

“The German growth revival looks fragile while India’s growth has hit the skids, with rising doubts about the prospects of major economic reforms. A synchronised slowdown of the world’s major economies could affect trade volumes, if the uncertainty continues to dampen consumer demand and business investment,” Prasad says.

As one of the parties involved in the current trade disputes, the US saw by far the heaviest losses amongst all GTB index countries, with its outlook declining by -11 points to 44. Those losses were mainly driven by a negative outlook for major export categories.

China scores second in terms of losses, with a decline of -7 points to 49 – an index value one point below stagnation. China’s negative outlook was primarily driven by declining imports in several categories, combined with just minor overall export growth.

DHL says that while the trade dispute between the two countries has been a looming, growth-impending threat since the GTB’s launch in January 2018, “it has never manifested itself as much as now in actual trade forecasts.”

“Given the US’ and China’s large contribution to the global index, their diminishing trade growth rates contribute to a large extent to the projected global decline,” DHL says.

But the global logistics company says that the still “rather mild” global trade contraction can be explained by the fact that during trade conflicts, trade flows do not merely dry out. Instead, trade routes and supply chains shift into other countries. On a global scale, this partly offsets the negative effects of trade tensions between countries.

DHL says that in the wake of the overall weakened trade climate, three GTB constituent countries recorded slower trade growth forecasts while managing to stay above the level of stagnation: Germany has registered a mere -1.0 point decline compared to the previous quarter and now scores 52, while India loses -6.0 points, resulting in an outlook of 53 points.

The UK actually gains +2.0 points, scoring an index value of 52. Given the still unresolved Brexit uncertainties, this result looks somewhat counterintuitive, DHL says, adding it might be an indication that companies are increasingly stockpiling inventories in face of the risk of a hard Brexit at the end of October.

East-Asian economies didn’t fare so well, with further weakening in trade momentum, the report says. In addition to China, the East-Asian economies of Japan and South Korea record sluggish trade momentum.

The index for Japan has fallen by -7.0 points and now sits at exactly 50, which indicates stagnating trade dynamics. South Korea is the third GTB country with a forecasted decline in trade growth for the next three months: On the back of a mild decline with 49 points in March 2019, the outlook further declined by -3 to 46 points. The next GTB update will be released End of September.

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