Hearts skipped a beat in early 2018 with the release of trade data. US exports suddenly turned sour in the opening months, and the scourge spread to Europe and the emerging world before the year was half over. Softness led to speculation that the multi-month strong run was over, naturally tapped out, and further beset by tariffs and other walls, real and imagined. Did the pessimists prove right, or is there another story in the work?

There’s good news and bad in the global numbers. Monthly figures from CPB in the Netherlands, adjusted for price movements show that the story was looking a bit bleak in March. Real exports were down 1.2 per cent from December 2017 levels, or almost 7 per cent at annual rates – thus the concern. Thankfully, they’ve picked up since then, and the trend through July is good. However, that has only just brought the level of global exports back to the January peak. In-year annualized growth is a modest 1.2 per cent, quite a bit below earlier expectations.

US near tops in the export growth charts

What’s the picture in different parts of the world? Well, the place with the loudest official trade-bashing banter – the United States – is actually doing quite well in the growth charts. So far this year, US exports are up 5.7 per cent from year-ago levels, against a developed-world average of 3.4 per cent. Japan has also managed above-average growth of 4 per cent, although most of their momentum came from late-2017. Europe, at justover 3 per cent, is pulling down the average. And other OECD countries – including Canada – were even worse, managing just over 2 per cent growth.

Emerging markets typically enjoy faster growth. However, the results for Latin America and Africa are particularly weak so far, at just 0.6 per cent and 0.1 per cent growth through to July, respectively. It gets better from there. Emerging Asia grew by 5.2 per cent, and Emerging Europe comes out on top with a 6.3 per cent export expansion.

What’s the story on export prices?

Pockets of performance aren’t, on their own, enough to portend better times ahead. If there is bright news, it’s on the price side. Year-to-date prices are up 9 per cent globally over 2017 levels, an impressive jump. But the US and Japan are not the drivers. Western Europe, on the other hand, is up 12 per cent, and other OECD countries, 10 per cent. On prices, emerging markets are running a bit behind the developed world, although Emerging Europe breaks the pattern with yearly increases of 19 per cent.

Some of this is due to currency shifts. Inflation ‘doves’ shouldn’t be too dismissive, though. Price movements like this demand scrutiny – and it may be that poor volume showings aren’t so much about soft demand as tight supply constraints. In the developed world, labour is clearly getting harder to find, and not just the skilled type. Constraints have also emerged in industrial capacity.

Inflation spike coming?

Does that mean we’re hitting an inflation wall? Not necessarily. We think there are still plenty of spare workers in the economy, left behind by years of sluggish growth. Where skills have atrophied, training or re-training could help a lot. And on the industrial capacity side, we’ve long argued that protracted under-investment has become entrenched, and price spikes are the jolt that business needs to reset investment behaviour.

The presence of pent-up demand in major markets suggests that growth itself isn’t faltering, but that the economy is hitting a new stride that requires a significant adjustment to hiring and investment practices. If such engagement occurs, global exports still have lots of life left in them.

The bottom line?

Exports aren’t faltering; they’re blessed with strong fundamentals. Current movements are sending out signals that it’s time to create new productive capacity. Increasingly, future growth depends on it.

 

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