Global Trade Tortoise as weakness persists

ASIA is still plagued with excess capacity, especially in China, and a
V-shaped recovery is unlikely any time soon, despite a glimmer of hope in the latest Singapore figures. Consumers are not opening their wallets . . .

The collapse in global trade has hit the exporting nations of Asia, including
China, particularly hard, Trade remains sluggish, but a glimmer of hope came when Singapore released its trade figures for May.
These showed that non-oil domestic exports rose 11.7 per cent, reversing a 7.0 per cent contraction in April.
Nevertheless, the responsible agency, International Enterprise (IE) Singapore, said year-on-year total trade declined by 1.5 per cent in May, following a 9.9 per cent fall the previous month. IE said total exports contracted by 2.1 per cent in May, following an 8.1 per cent decline the previous month.
While the numbers came as a consolation to trade-dependent Singapore, improvement in one month — thanks to higher demand from Taiwan, the US and Malaysia – does not signify a trend. Singapore’s total imports decreased by 0.9 per cent in May, following a 12.0 per cent contraction the preceding month.
It is precisely the decline in imports by countries around the world that is the reason for slow growth in global trade. It tells a tale of sluggish or weak demand.
China, the market the world is watching closely for signs of recovery, has yet to pick up in imports. China General Administration of Customs’ statistics show that imports fell 12.7 per cent in March from a year ago. China has yet to release figures for April and May.
Japan’s imports declined by 14.9 per cent in March — far more sharply than the slide in exports (6.8 per cent).
Whether the improvement in Singapore’s
export figures in May will be reflected around the region is as yet unknown.
But even Singapore has cautioned that a month’s figures could be an aberration rather than exports turning the corner.
In June, IE Singapore revised its trade
forecast for 2016 downward from growth of
between zero to 2.0 per cent to a contraction of between 3.0 and 5.0 per cent.
In a recent research note, the French investment bank, Natixis, said that, so far this year, trade data has been discouraging for the
region. Both exports and imports have been collapsing in value.
“Before we get to the medium term, the immediate question is whether we have reached the bottom of the weak trade cycle,” wrote Trinh Nguyen, Natixis’ senior economist. Her analysis showed that regional trade activity is unlikely to have a V-shaped recovery, although a sharp contraction is also not expected.
The region is still plagued with excess
capacity, especially in China. “We expect trade to be sluggish in the months ahead,” Nguyen said. “(But) although subdued, the region is still a bright spot globally, given its above-average growth rates.”
Panning across the globe, Nguyen says
demand indicators are decelerating across the board, even in recovering regions such as the US and the Eurozone.  Nguyen notes that,
unlike in the past, the current recovery in the US has not been “import-intensive”.
Looking at indicators such as PMI indices, she believes Japan, for example, will see manufacturing conditions deteriorate further.
For the rest of the region, weakness persists, with only Korea, Indonesia and Vietnam showing some improvement. This means that
exports in the region, with the exception of some pockets of strength, are unlikely to stage a recovery any time soon.
Activity at ports can foreshadow whether trade can stage a rebound soon. On-year growth rates for port shipments by volume for Hong Kong, Singapore, Shenzhen and Australia (Port Hedland) are slowing — another reflection of weak regional trade.
Only Australia has positive port activity growth, although it, too, is slowing.
Hong Kong is performing worst — an indication of its deteriorating domestic outlook, a strong Hong Kong dollar, a slowing China and weak regional trade. Both Shenzhen and Singapore ports also are declining in activity, but not as quickly as Hong Kong. A closer look at port volume growth in Shenzhen together with China trade volume growth reveals that trade activity is picking up slightly — but is still stuck in low gear.
Analysts say there is a strong relationship between growth in fixed investment and trade. A rise in investment is usually accompanied by a lift in trade, particularly imports.
Consumption is the underpin of imports and trade. In the face of weak economic growth, consumers are not opening their wallets.
In April, retail sales in Hong Kong dropped 7.5 per cent year-on-year to HK$35.2 billion — due to a combination of less spending by both Hong Kong shoppers and tourists from China.
Between 2010 and 2013, tourist-related spending was the engine of retail sales in Hong Kong. Some analysts expect the current negative growth rate to continue until the second half of 2016.
The Hong Kong experience may be symptomatic of what is happening in countries around the world. A recent International Monetary Fund (IMF) report highlights the importance of China in explaining the slowdown in global trade growth. 
Chinese imports (in real terms) have decelerated significantly, and close to half of the slowdown is due to China’s more restrained appetite for investment. The other half reflects weaker Chinese exports.
The world is feeling the repercussions of a slowing China through the global value chain.  This was what powered much of the world in the early 2000s, but the process is now running in reverse.
“If we believe that China has a central role in dictating the trajectory of much of the global manufacturing and trade sectors, then the world should remain weak as long as China is in consolidation mode,” writes Stephen Jen, who runs SLJ Macro Partners, an independent economic research firm in London.
Christine Lagarde, Managing Director of the IMF, says China is in the midst of a welcome transition to a slower but more sustainable growth path. This transition partly explains the cooling of global growth, and especially trade.
“Our estimates suggest that a one percentage point decline in China’s growth could reduce global GDP by about 0.2 percentage points,” she says.
The slowdown in China has
resulted in a sharp drop in imports of commodities, including oil. And a widely-expected shot in the arm for the global economy from lower oil prices has not eventuated.
Lagarde says that the oil “windfall” turned out to be more like a breeze! “It was perhaps most noticeable in the United States, where private consumption has been strong, and to some extent in the Euro area, where demand also picked up. But in Japan, consumption remained virtually flat.”