World Trade Turning Down
Something different for today: world trade. Recently, South Korea and Taiwan released July 2012 trade statistics, where annual export growth was seen contracting at a 8.8% and 11.6% rate, respectively. The annual pace of export growth in Taiwan contracted for the fifth consecutive month, where that in South Korea turned negative following a 1.1% annual rate in June 2012.
On balance, exports in key Asian markets, such as South Korea, Taiwan, and China, are seen as leading indicators for world demand due to their intermediate nature of production in the supply chain. And the signal there is not good for global demand.
The Netherlands Bureau for Economic Policy Analysis and JP Morgan make available world trade statistics and a global PMI, respectively.
The correlation between the 3-month percentage annual rate of change of world trade and the global PMI have a 77% correlation dating back to 1998. Although the world trade statistics are current as of May 2012, the June and July global PMI, 49.1 and 48.4, respectively, do confirm the weakness seen in the Asian country export data and portend deterioration in this measure of world trade.
A simple bivariate regression of the 3-month growth trend in world trade on the global PMI implies a 3-month annualized contraction of 0.66% in July. This is far from the pace of contraction in 2009 – according to this statistic, World trade declined at its fastest 3-month trend rate in January 2009 of 50.5%. Furthermore, there’s no precipitous downtrend in the PMI that would suggest a sharp contraction in world trade.
I can only conclude that it’s too early to call stabilization in World trade, rather the opposite. However, the pace of contraction could be quite mild if policy makers ease globally.
cross posted with The Wilder View…Economonitors