Has global trade peaked?

World trade recorded its biggest contraction since the financial crisis in the first half of this year, according to figures that will fuel a debate over whether globalisation has peaked.

The volume of global trade fell 0.5 per cent in the three months to June compared with the first quarter, the Netherlands Bureau for Economic Policy Analysis, keepers of the World Trade Monitor, said on Tuesday.

Economists there also revised down their result for the first quarter to a 1.5 per cent contraction, making the first half of 2015 the worst recorded since the 2009 collapse in global trade that followed the crisis.

Global trade actually rebounded 2 per cent in June, according to the World Trade Monitor but its authors warned that the monthly numbers were volatile and the more revealing pattern lay in the longer term figures.

Those numbers built on what has been a grim pattern for global trade in recent years and the unwinding of a decades-old rule that saw trade grow at twice the rate of the global economy as a result of what some have called hyperglobalisation.

In the three months to June, global trade grew just 1.1 per cent from the same quarter of 2014, according to the new Dutch figures. The International Monetary Fund expects the global economy to grow 3.5 per cent this year.

“We have had a miserable first six months of 2015,” said Robert Koopman, chief economist of the World Trade Organisation, which has forecast 3.3 per cent growth in the volume of global trade this year but is likely to revise that estimate down in coming weeks.

Much of this year’s slowdown in global trade has been due to a halting recovery in Europe as well as a slowing economy in China, Mr Koopman said.

The global economy’s “growth engine” had been operating as if it had a mechanical fault for some time with “good growth in some countries offset by weak growth in others”.

But there is also clearly a structural shift happening in the global economy, he said, and that means slowing global trade is likely to endure for some time.

The attempted shift in China from an export-led economy to one that is more driven by domestic consumption has structural implications for global trade, Mr Koopman said.

So too do the changing energy dynamics in the US, which is becoming a net exporter of energy, and a pattern of manufacturers deciding to shorten their global supply chains and bring production closer to home as part of a “nearshoring” and even “reshoring” movement.

“There’s an adjustment going on in the global economy and trade is a place where that adjustment becomes pretty visible,” Mr Koopman said.

The slowdown in global trade has led some to proclaim that globalisation has peaked with technological innovations such as 3D printing creating more disruptions.

But while it may have peaked there are no signs yet that globalisation has gone into reverse, Mr Koopman said.

While growth in trade has slowed to “mimic global GDP [gross domestic product]” it remained stable as a component of the global economy with merchandise exports accounting for a steady third of global output when measured in constant 2005 prices.

This article is published in collaboration with the Financial Times. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Shawn Donnan is the World Trade Editor for the Financial Times