Global trade is a big part of getting the world economy going again. Trouble is, there’s still a lot that’s holding it back. With key indicators everywhere now showing large increases, is international trade back up, backing up, or is there a backup in the process that’s keeping a lid on activity?
It may take a few more weeks to tell. For the most part, world exports continued to fall through May, the last month of available data. True, there was positive movement in China, the Euro Area and other advanced economies, excluding the United States and Japan. However, there was still enough decline in the world as a whole to pull the total down about 18% since the end of 2019.
Developed markets have taken the harder hit, down 26% through April, although collectively there was modest improvement in May. Not so for the emerging world; China’s gains weren’t enough to sway the total, which slid in May to a cumulative decline of 13% since the start of the year.
Still, the modest rise in developed-market exports is encouraging, and hopefully a leading indicator for the rest. The sharp increase in June retail sales in the U.S, the United Kingdom and Canada to pre-COVID-19 levels is almost sure to fire up export activity in June and beyond.
Complicating analysis is the reality that global spending cycles have been seriously interrupted. Retailers have to think of spending seasons, and are always planning months ahead. Here’s where shipping data come in handy. One of our favourites it the Baltic Dry Index. It’s an upstream indicator, as it gives a sense of raw material movements—things that get processed well ahead of the final sale. Signs were very encouraging in late May. At that point, the series had been fluctuating in a very low range since early February. From there, it jumped about five-fold through early July, telegraphing a solid rebound.
Since then, the index has slipped. It’s not clear at this point whether it’s related to second-wave infections, or is merely a pause after an excessively exuberant run—but it bears watching, as this has in the past proven to be a reliable leading indicator of broader economic activity.
Another telling barometer is the Harpex Index—like the Baltic, a gauge of shipping lease rates, but in this case for container shipping. After a multi-month, 42% tumble through mid-June, this indicator jumped 18% through July 24, perhaps a sign that buying and shipping for the critical fall season isn’t a dead loss. Lease rates are rising most aggressively for the larger ships—although admittedly, they were the ones that suffered the greatest decreases, and have a longer way to go to get anywhere close to pre-COVID-19 lease rates.
What’s the near-term future for exports? It’s possible that spending disruption has left a lot of inventory sitting around. At one point, ports were refusing to off-load wares as inbound goods were piling up on the dock with receiving firms refusing to take delivery. Clearly, it will take time to liquidate inventories before there’s proper capacity to facilitate trade movements.
Exporting is further complicated by the reluctance factor. There may be an unwillingness to receive goods from a location that’s still struggling with containment of COVID-19. Demand may be there, but supply may well be compromised—either at the firm level or with shippers.
Supply lines might also be disrupted by legislation. Zones that reimpose economic closure would compromise supply chains located there, and final goods shipments to and from there. Regulation—whether state or self-imposed—could cause second-wave infections to cause a further slowdown of export activity.
If there’s an upside, it’s in the recent retailing information. Shoppers seem to be back—because they simply have to after the pause; because those who have been earning an income without enough to spend on can finally get out there; because there’s a lot of public money in the hands of people and businesses that is now getting spent; or some combination of the three. Needless to say, there’s a lot of pent-up spending, and that’s now being unleashed. It may take a few weeks, but exports will catch up.
