Recovery in progress

IS THE glass half empty or half full for world trade? Figures released on March 1st by the Netherlands Bureau for Economic Policy Analysis (CPB), which maintains a close watch on global trade volumes, point to renewed vigour at the end of 2009. Trade volumes rose by 6%, quarter-on-quarter, in the final three months of the year.

But these figures also underline just how severely trade was affected by the global recession. The CPB reckons that volumes shrank by a staggering 13.2% during 2009. They have fallen in only two other years since 1961, when comprehensive data begin. But those declines—by 1.9% in 1975 and 0.9% in 1982—pale in comparison with last year's huge drop.

Still, a revival is clearly under way. The volume of trade went up by 5% in December alone. Weak growth of 1.2% in October and 1.1% in November might have suggested that the recovery which began earlier in the year was faltering.

Unfortunately, it may be too early to be sanguine about a sustained recovery

Unfortunately, it may be too early to be sanguine about a sustained recovery in trade and thus in the world economy. Figures from the World Bank, which track the value rather than the volume of trade, point to a deceleration in the final quarter, not the acceleration that the CPB's data suggest. According to the bank, the value of exports from a sample of 56 countries making up the lion's share of world trade continued to rise in the final quarter, but at a slower rate than in the third quarter.

Data on trade values partly reflect exchange-rate fluctuations, so it is not unusual for them to lead to somewhat different conclusions from volume figures. But there are other reasons to be cautious. December is typically a good month for global commerce because of holiday spending in many parts of the world. Strength in December is therefore by no means sure to have continued into the new year.

Looking ahead, it is not hard to see threats to trade's recovery. Global demand is still being propped up by government intervention on an enormous scale. Its withdrawal, if mistimed, would pose fresh dangers for the global economy, and with it for trade. As Caroline Freund of the World Bank points out, “There is a risk of stagnation in 2010, as restocking is completed and effect of the stimulus on demand growth wanes. While the stimulus will continue to boost trade volumes in 2010, any growth effect will be much smaller.”

The strength of the recovery varies from one part of the world to the next. Export data reflect both the now-robust growth of emerging economies and the still-anaemic performance of the rich world. Investment demand from emerging-market countries does help manufacturers of more sophisticated goods, such as machinery, in rich ones. But demand from ordinary consumers in poorer countries mainly bolsters exports in other developing economies. In keeping with this, the volume of exports from emerging economies grew by 8.7% in the three months to December. Rich countries' exports increased by only 4.1%.

The relative performance of China, the leading exporter among emerging economies, and Germany, the rich world's champion, is a case in point. Last year China overtook Germany to become the world's largest exporter of goods. Germany's sales abroad in 2009 were $1,121 billion, compared with China's $1,202 billion.

Emerging economies are, besides increasing their exports, a growing source of demand

That emerging economies are, besides increasing their exports, becoming an important source of demand for traded goods can be seen in their imports, which grew by 7.4% in the final three months of last year. Imports into rich countries grew by only 3.9%.

By the end of the year trade values had risen by almost 30% from their nadir last February. However, the World Bank's economists point out that they were still 20% lower than before the crisis. They think they are 40% below where they would have been had the crisis never happened. World trade may be on the mend, but its recovery is far from complete.