Predictions for International Trade post 2009 / 2011? (Kapil - 3 pages) -Can it happen again?

What can be done to prevent it? What is being done?

Prospects for trade

The outlook for global trade International trade has been volatile during the current recovery, reflecting the wider inventory cycle in global industrial production (see Main text and Industrial Production annex). The recovery in trade has been dominated by strong import demand from developing countries, which has accounted for more than half of the increase in global imports. As the recovery matures, support for trade is shifting from temporary factors (government stimulus and re-stocking of inventories) to more sustainable drivers, notably a rebound in private sector spending on capital goods and consumer durables. Looking forward, world trade is expected to continue expanding at close to 8 percent annual pace, above average in historical context. Trade volumes are surging again. After a blistering pace of growth in the first half of 2010, global trade growth ground to a halt in the third quarter, only to pick-up again strongly in the fourth quarter. By March 2011 (latest data), global merchandise trade volumes were expanding at a 30 percent annualized rate (3m/3m, saar), the fastest pace in over a decade. The rapid pace of trade growth partly reflects the depth of the decline observed during the recession. Despite faster growth rates, trade volumes regained pre-crisis peak levels 32 months after the crisis, something achieved in only 16 months following the previous major slump in world trade in 2001. As of March 2011, global trade was 8.9 percent above its pre-crisis peak, compared with 10.6 percent higher at the same stage in the previous recovery. And in spite of recovery, global trade volumes remain below trend levels (the level of trade would have been if the crisis did not occur and trade grew at its pre-boom average), though developing countries have regained their trend levels. Developing country demand is at the heart of the recovery in global trade. Import demand from developing countries was responsible for more than half of the growth of global trade during the first half of 2010, and again during the fourth quarter of 2010 and the first quarter of 2011. Like other regions (with the exception of the United States) developing countries support petered out in Q3-2010, but then rose strongly in the fourth quarter (while U.S. imports declined).

For the first quarter of 2011, developing countries accounted for nearly 50 percent (of which Chinas contribution alone was 25 percentage points) of the increase in global import demand. Developing country export performance has shown considerable heterogeneity. Trade volume growth in Asia has been extremely rapid. Buoyed by strong growth in Pakistan and India, the annualized pace of export growth in South Asia reached a record 81.7 percent (3m/3m, saar) in February 2011 and moderated to 74.9 percent in March 2011. Spurred by strong performance in China, export volumes in East Asia and the Pacific expanded at a 64.0 percent annualized pace in the 3 months to January 2011 and moderating to 45 percent in March 2011. Strong exports in Russia drove volume growth in Europe and Central Asia to an eight month peak of 15.5 percent (3m/3m saar) by March 2011. And reflecting exchange rate appreciation, export growth in the Latin America and Caribbean region lags other developing regions, having expanded at a 12.2 percent annualized rate in the three months ending March 2011. The recovery in the dollar value of exports is less advanced than that of volumes. Notwithstanding the sharp rise in the price of commodities in recent months, the dollar value of exports has not recovered as far as volumes, because many prices remain below their pre-crisis peaks of 2008. As of January 2011, global exports were 6.3 percent above their pre-crisis peak in volume terms, but remained 5.7 percent below earlier highs in dollar terms. Nevertheless, price developments have favored commodity exporters, in particular oil. metals and mineral exporters. For example, the terms of trade improvement for oil exporters in Europe and Central Asia amounted to about 1.8 percent of GDP, compared with a deterioration of 1.1 percent for oil importers in the same region. World trade growth is on more solid footing. Capital goods exports have continued to strengthen as the recovery matures, a sign of the increasingly self-sustaining nature of the recovery. During the recession, capital goods imports fell by more than imports of consumer durables and agricultural products (although less than oil imports), as falling demand and increasing uncertainty led businesses to cut investment and run down stocks. During the initial phases of the recovery, growth in capital goods imports was driven by massive government stimulus programs (most of which had a heavy infrastructure component) as well as a need for businesses to replenish their stocks. Since that time, these temporary factors have waned, and imports of capital goods by businesses surged in the fourth quarter of 2010. In the United States, for example, business spending on equipment and software rose at a 7.7 percent annualized pace in the fourth quarter although it eased to just 1.8 percent growth in the first quarter of 2011. Recently, slowly improving labor market conditions in high income countries have boosted consumer goods imports, with trade in these goods exceeding that of capital goods. Consumer goods imports are now 4.6 percent higher than their pre-crisis peak levels, while capital goods imports remain 11.5 percent below pre-crisis peak levels, partly reflecting the much deeper trough they experienced (capital good demand declined 35 percent during the crisis).

The global recovery also is becoming more broadly based. High-income country exports are now growing rapidly, though, consistent with lower potential growth rates, not as quickly as among developing countries. By March 2011 export volumes for highincome countries were increasing at a 28.1 percent (3m/3m, saar) rate, up from the 2.7 percent (3m/3m, saar) in July 2010. In contrast, developing countries export volumes advanced at 33.4 percent (3m/3m, saar) in March 2011, compared to a decline of 4.6 percent (3m/3m, saar) in September 2010. http://web.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTDECPROSPECTS/EX TGBLPROSPECTSAPRIL/0,,contentMDK:22931776~menuPK:7140005~pagePK:247 0434~piPK:4977459~theSitePK:659149,00.html there is a net redistribution of wealth away from the rapid-growth economies a process accelerated by the financial downturn and the economic recession that it has caused. Companies from those rapid-growth markets are now challenging the giants of the Fortune and Forbes lists. World trade has recovered strongly following the global financial crisis. But rather than a return to business as usual, we are now seeing new patterns of international trade emerge. Businesses will need to adjust their strategies to reflect the changing patterns of world trade that are developing and are poised to intensify over the next decade. Risks: Prospects for the global economy have been buffeted by a
succession of blows over the past six months: sharply rising oil and commodity prices, supply chain disruption triggered by the disasters in Japan, and debt crises in both the Eurozone and the US. In recent weeks, financial markets have caught up with the global gloom and conditions have deteriorated sharply. From their peak in early May, global stocks have now fallen by more than 20% unnerved by weak data, the Eurozone sovereign debt crisis and the downgrade of the USs AAA credit rating.

The risk of even worse outcomes, including renewed recession, is significant. The latest round of financial distress can only further weaken consumer and business confidence already at low levels making the global growth and trade outlook even more uncertain. We judge there are three key risks to the outlook: Renewed sovereign debt crisis in the Eurozone. Lack of confidence in the creditworthiness of Eurozone countries triggers further sovereign defaults, rises in borrowing costs and a recession in the euro area. This would produce a new wave of loan losses for global banks, leading to tighter credit conditions.
US recession. Stock markets tumble with a slump in household spending and business investment. Political deadlock limits the ability of fiscal policy to respond, although a third round of quantitative easing by the Federal Reserve helps to support growth in the US while producing further capital inflows into emerging markets.

 Hard landing in China. Weak trade and a slump in commercial property triggers banking sector stress. Investment falls while the banking sector is recapitalized. The Asian supply chain is affected as the domestic growth engine stalls. Even before the recent global turmoil, the pace of growth in emerging markets was slowing, reducing risks from rising inflation in these economies. With global economic activity subdued and equity markets weak, such risks are likely to fall yet further; indeed, monetary policy in China may well shift towards supporting growth. However, inflation is proving more persistent in India. In the longer term, high inflation in emerging markets, especially if driven by a push for higher wages in the more developed cities in China and other parts of Asia, has the potential to change the map of global trade flows. Higher wage inflation in China and India would open up opportunities for other emerging markets in Asia and Africa, as low-cost producers. Introduction : Although global trade collapsed during the financial crisis, it has since bounced back strongly, led by trade among emerging markets. But what remains unclear is whether the key trends of the past 10 years can be expected to extend into the coming decade, or whether the global financial crisis has changed the dynamic of the global economy, resulting in new patterns of international trade.

continued from above :Booming income growth in emerging markets: new sources of demand: By contrast, growth in the advanced
economies will be weighed down by: Significant economic adjustments, with a shift away from dependence on the financial sector in the aftermath of the global financial crisis Fiscal tightening, as governments seek to put their finances onto a sustainable long-term path Deleveraging in the private sector, as households and businesses pay off debt Aging populations, meaning that labor forces will begin to shrink, while increased demand for health and social care places additional strain on public finances and private consumption alike We expect overall GDP growth in rapid-growth markets of around 6% per year to 2015, gradually slowing toward 5% by 2020. By contrast, growth in the advanced economies is not expected to exceed 3% in the near term, with a decline to 2% by 2020. Given such divergent prospects, the contribution of the rapid-growth markets to global GDP is set to rise significantly. Measured at current market exchange rates, the global GDP share of these markets is set to increase from around 34% in 2010 to 48% by 2020. Chinas share alone is forecast to surge from 9% to nearly 20% over this period. These gains will be at the expense of the advanced economies. The share of global GDP accounted for by the United States is forecast to fall from 23% to 21%, while the share of the Eurozone will decline from 20% to 15%.

Where are economic prospects brightest?

Asia is increasingly seen as the region that will dominate world trade by 2020. nearly half of Asia-based companies expecting to export more than 60% of their output in five years time compared with fewer

than a fifth of companies in the Americas. A key result is that India and China will drive the continued rise of the rapid-growth markets and, together, these economies will become more important to global trade than the US and Eurozone .In Latin America, plentiful natural resources and strong FDI inflows will enable improvements in productivity and infrastructure to support potential growth. Large populations and the rapid accumulation of wealth, particularly in Brazil, will also support the growth of domestic demand within this region. However, there is also a new wave of markets appearing that will present fresh trade opportunities. Africa will capitalize on its plentiful and expanding labor force, abundant natural resources, and a more stable political outlook in some countries. Strong investment by other rapid-growth markets, and China in particular, may facilitate the strong growth that Africa needs, finally bringing about the rise of the continent One of the most important factors powering the development of global supply chains over the past two decades has been the proliferation of regional trade agreements, such as ASEAN in 1992 and NAFTA in 1994, together with several EU enlargements and the creation of the single currency in the Eurozone in 1999. This has led to a significant lowering of trade barriers within regions, facilitating the growth of regional trade and the emergence of regional hubs. Lower trade barriers, along with advances in global transportation and communications technology, make it increasingly viable for different stages of production to take place in separate locations. This allows companies to seek out the lowest-cost provider for components, regardless of location. 2012 visions patterns of trade Regional trade expansion will outpace global growth. Over the next 10 years, Asia will continue to be the most dynamic region, with the fastest growth of trade in goods occurring within the region itself. Europe is the developed region that is expected to improve its trade position with China the most, with the increase in exports to China outpacing the increase in trade flows in the opposite direction. India and China will be extremely dynamic in penetrating new markets, particularly in sub-Saharan Africa and MENA. While the US share of world exports fell significantly over the past decade, this trend will likely be reversed over the next 10 years, as the US capitalizes on its strength in exporting to Asia. Europes share of global exports will decline, from 38% in 2010 to 34% in 2020. Trade in services is likely to enjoy rapid-growth over the next 10 years, with Asia leading the way. By 2020, the total flow of services from Europe to Asia Pacific (excluding Japan) will be larger than to North America.

Patterns of trade will continue to shift:

Global trade was dominated by the advanced nations at the start of the 1990s, which together accounted for around 80% of global trade in merchandise exports. But the share of the advanced economies has since declined markedly, with the recent financial crisis and global recession compounding that downward trend; by 2010, the advanced economies accounted for a little over 60% of global merchandise exports. We estimate that the continuing shift toward global outsourcing of production, as well as the growth of regional supply chains to serve the expansion in final demand from

rapid-growth markets, will further compress the share of the advanced economies to around 55% by 2020. forecasts for global trade growth are that Asia will continue to be the most dynamic region for trade, with the fastest growth of merchandise exports occurring within the region itself. More specifically, it will be China and India that lead this expansion. Indeed, our bilateral trade forecasts show the fastest-growing trade route will be between these two economies, with Indian exports to China growing at an average annual rate of almost 22%, while flows in the opposite direction expand at an average annual rate of 18.5%. We expect China and India alone to account for just under one-fifth of global trade flows by 2020. It is important to note that the economic dynamism of Asia is presenting exporters from the developed nations with a host of new opportunities. Our projections show that two of the most rapidly growing trade routes will be US exports to China and India, which we see growing at an average annual rate of almost 16%. So while the US share of world exports fell significantly over the past decade, our forecasts imply that this trend will be reversed over the next 10 years as the US capitalizes on its strength in exporting to Asia. Europes share of global exports will also decline from 38% in 2010 to 34% in 2020.

Despite the introduction of various protectionist measures during and as a result of the global financial crisis, world trade recovered more quickly than initially expected. Increased demand for imports from developing countries significantly contributed to the rapid recovery of trade. Although as a result of the global financial crisis, an array of trade measures has been introduced, their number is still considerably smaller than it used to be in the course of the Great Depression. In the 1930s, countries used trade barriers to seal off their markets so tightly that world trade shrunk by two-thirds within just a few years. One of the most important insights from this era is how disastrous protectionism is for the revival of world trade. For this reason, one of the main motivations for the multilateral trade negotiations and the accord on the General Agreement on Tariffs and Trade (GATT), the predecessor of the WTO, was the avoidance of trade wars. The existence of the WTO, as well as the agreements in the G20 framework, have prevented a protectionist race. But the WTO has not been able to prevent new, subtle types of protectionism (murky protectionism).

Developing countries as the motor of world trade he prospects: future risks

Even if exports from developing countries have rebounded and the extent of protective measures has not yet spun out of control, there is ample reason to continue to carefully monitor the future development of international trade policy. On the one hand, the industrialized countries demand for exports from developing countries could drop again. If, for instance, the global economic situation should deteriorate once more, the demand for exports from developing countries would slump again. This danger exists in light of the current debt crises and be-cause the financial markets in some industrialized countries are fragile and their growth rates are still low which is why developing countries should strengthen regional trade and diversify their export partners

The danger of protectionism warrants the additional strengthening of multilateral trade rules Looking to the future, there are therefore grounds for increased vigilance with respect to protectionism measures. This necessitates the improvement of monitoring and control of protectionist measures