Area Economy

World trade expected to remain sluggish for next two years

April 26, 2013
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Ten years ago, America lost its position as the world’s leading exporter when Germany’s merchandise exports exceeded those of the United States. In 2009, China overtook Germany as the world’s leading exporter of goods.

According to the latest annual trade statistics compiled by the World Trade Organization, China was the world’s top merchandise exporter for a fourth year in a row, accounting for almost 11.2 percent of world exports. Chinese exporting companies sold $2 trillion worth of goods worldwide in 2012, which was 8 percent more than in 2011.

Despite a weakness in demand from European countries, American exporters shipped worldwide $1.5 trillion worth of goods in 2012. National merchandise exports rose 5 percent in 2012, following a surge of 16 percent in 2011. As a result, WTO ranked the United States the world’s second largest merchandise exporter in 2012.

In spite of a decline in its exports last year, Germany was still ranked as the world’s No. 3 exporter of goods in 2012. German exporting companies sold $1.4 trillion worth of goods abroad, which was 5 percent less than in 2011.

In sum, global exports of goods failed to grow in 2012, staying flat at $17.8 trillion, a disappointing performance from last year’s surge of 20 percent. The world’s top three exporters — China, the United States and Germany — accounted for 27.3 percent of the world’s exports last year.

In the first two months of 2013, national merchandise exports rose to $263 billion, which is $7 billion or 2.8 percent more than the same period in 2012. The monthly numbers for 2013 indicate that American foreign sales continue to grow, but at a slower pace than in 2012 amid flagging output and high unemployment in the industrial countries that reduced their foreign purchases.

A slowdown in the growth of a company's foreign sales leads to a weakening in overall corporate sales and profitability with adverse effects on capital expenditures, thus holding back the creation of new jobs. How well have Michigan's exporters done so far in 2013?

During the January-February period, exports of goods from Michigan, seasonally adjusted, increased by an annual rate of 5.6 percent from the same period of last year. Like the national numbers, state trade figures are adjusted for seasonal variation, a statistical process that smoothes volatility in monthly data by eliminating the effects of uneven recurring events such as the number of days in a month and holidays, thus providing a better picture of the underlying trend in exports.

As a result, Michigan ranked 17th in export growth among states in the first two months of this year.

The latest snapshot of monthly trade numbers shows exports from Michigan's companies fell 1.8 percent in February from the previous month, following a decrease of 2.1 percent in January. At their February mark, foreign sales registered $4.76 billion, seasonally adjusted, which is $87 million less than in January.

Was February’s performance in state exports broad-based? Manufactured goods, a major contributor of export-related jobs, accounted for 86 percent of all state exports. Foreign shipments from Michigan's manufacturers decreased in February by 0.9 percent from the previous month to $4.09 billion, adjusted for seasonal variation.

On an annual basis, foreign sales from state factories were $73.1 million, or 4.2 percent higher than in February of last year.

Exports of non-manufactured goods went down 7 percent in February to $670.5 million, adjusted for seasonal variation. This group of shipments abroad consists of agricultural goods, mining products and re-exports, which are foreign goods that have entered the state as imports and are exported in substantially the same condition as when imported.

What is the outlook for global trade for the rest of 2013 and in 2014, which will influence the demand for Michigan's foreign sales and eventually the state’s overall economic development along with the future of export-related jobs?

“World trade is expected to remain sluggish in 2013 as the economic slowdown in Europe continues to suppress global import demand,” said WTO Director-General Pascal Lamy, who presented summary results of the 2013 report on trade and economic prospects on April 10 in Geneva.

Assessing last year's trade numbers, Lamy added that the “events of 2012 should serve as a reminder that the structural flaws in economies that were revealed by the economic crisis have not been fully addressed, despite important progress in some areas. Repairing these fissures needs to be the priority for 2013.”

Looking forward to international trade developments, WTO's director-general warned that “the threat of protectionism may be greater now than at any time since the start of the crisis, since other polices to restore growth have been tried and found wanting.” Lamy emphasized that “it is time to do no harm.”

The Geneva-based organization — which deals with the rules of trade between nations helping producers, exporters, and importers who conduct their worldwide business — forecasts the volume of world merchandise exports to increase by 3.3 percent in 2013 and 5 percent in 2014. Trade volume measures exports in units of goods by adjusting dollar values of exports for price changes.

Regarding the country contributions to the expected growth, WTO predicts trade expansion in 2013 to be particularly strong in the developing countries with exports rising by 5.3 percent, while in the industrial countries exports will increase by just 1.4 percent.

In sum, the WTO forecasts a continuation of growth in global trade at a moderate pace in 2013. The predictions suggest that Michigan companies will continue to receive bigger export orders from foreign buyers this year, but the increases will not be as good as in previous economic recoveries. It also suggests that there will be better export opportunities for local exporters in the emerging economies than in the industrial countries.

Evangelos Simos is chief economic adviser of the consulting and research firm e­forecasting.com. He may be reached at eosimos@e-forecasting.com.

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