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Global trade continues to lag recovery in Industrial Production

Theo Janse van Rensburg's picture

Both industrial production and trade declined sharply in the aftermath of the global financial crisis. In February 2009, global industrial production was falling at 23.7 percent annualized pace, while world import volumes were declining at rates in excess of 40 percent (annualized quarterly growth rates, based on 3-month moving averages of monthly data).


Source: World Bank calculations based on Thomson Datastream data

 


Beginning in April/May, global industrial production began recovering, initially led by accelerating growth in China following the implementation of the $575 billion (over 5 quarters) fiscal stimulus package. Consequently, Chinese industrial production growth turned positive in January 2009. Increased import demand from China quickly spread to other countries, with industrial production registering positive growth in emerging countries (excl China) by March 2009 and high income countries by May 2009. As the benefits of the stimulus measures and inventory restocking began to wane, industrial production in China started to slow as it has in some other developing countries. Signaling a transition to slower growth, more in line with underlying demand patterns, this slowdown is not a cause of concern per se. Indeed, a similar slowing is expected in high-income countries in the months to come as the inventory cycle there wanes as well.

A broadly similar pattern, albeit much more pronounced, has been observed in global trade volumes, with one important distinction ---the recovery in global trade volumes from earlier peaks has been less sharp than the recovery in industrial production.  By November 2009 industrial production was about 7 percent below the 2008 peak, whereas by November 2009 global trade was still some 13.4 percent below earlier peaks. The apparent lag in the rebound in trade does not appear to be a reflection of weak trade finance (although doubtless is has played some role). Rather the lag appears to reflect the still-depressed level of investment activity (investment goods generally are heavily traded). Global investment fell by an estimated 9.8 percent in 2009 and even in 2010 investment growth is expected to remain relatively low at around 5 percent.