It is the kind of headline that sends a shiver through economists’ spines: “Global trade growth hits new low”, agencies report. After all, over the past few decades, economic growth has been closely correlated with trade flows.
And on the occasions throughout history when trade growth has plunged – in the 1930s, for instance, or the 2008 financial crisis – it has prefigured deeper problems with the world economy.
And yet today two of the most preeminent international economic organisations – the World Trade Organisation and the International Monetary Fund – have independently sounded the alarm over falling volumes of trade around the world.
The WTO said that this year would see the weakest trade growth since the financial crisis. It said trade will grow by 1.7% in 2016, compared with its estimate of 2.8% from earlier this year and the weakest number since 2009 (itself the worst year since recent comparable records began).
The IMF also released a chapter from its World Economic Outlook saying, “the slowdown in trade growth is remarkable”, pointing out that it was largely a consequence of falling economic growth. It pointed out that normally trade growth tended to increase far quicker than world GDP, but that for the past few years, it had been considerably slower.
In practice, not all of the explanations for the fall in trade growth are bad news.
In part, the falling volumes may reflect long-term economic trends – for instance much of what passes today as international commerce happens online, and an increasing proportion of world trade today is in (invisible) services rather than (visible) goods.
However, there are also less benign explanations. One is that there is a growing appetite for protectionism. Although there are fewer permanent tariffs in place today, thanks to decades of work by politicians to pull them down, there are increasing unofficial trade barriers being erected.
For instance, the IMF points out that the proportion of products around the world protected by temporary trade barriers has risen from around 0.5% in 1990 to almost 2.5% in the past year.
And, in an unpromising sign for the new UK secretary for international trade, Liam Fox, the IMF points out that the number of new free trade deals signed in the past year has dropped to the lowest level for a quarter of a century.
But the most compelling explanation for the fall in trade volumes is more simple: the world economy simply isn’t growing as fast, and therefore demand for goods remains weak.
The IMF analysis finds that up to three-quarters of the weak trade growth is down to weak economic growth and weak investment. In short, it is another symptom of an economy which is not firing on all cylinders.
WTO director general Roberto Azevedo said: “The dramatic slowing of trade growth is serious and should serve as a wake-up call. This is a moment to heed the lessons of history and recommit to openness in trade, which can help to spur economic growth.”