What’s going on with global trade?

A worker walks on goods waiting to be exported in a port in Lianyungang, east China's Jiangsu province. Global trade has become stubbornly weak and has yet to return to its pre-crisis levels, all the while continuing to trend below the world's GDP growth.

In the three decades prior to the recent financial crisis, rapid globalization helped the world’s trade grow at twice the rate of the global economy.?But those halcyon days seem to be behind us. Instead, global trade is becoming stubbornly weak and it has yet revisit its pre-crisis levels, all the while continuing to trend below the world’s GDP growth.

The latest data from the CPB World Trade Monitor implies that the global economy just had its worst two quarters for trade since the 2008 financial crisis, and no one appears to know why. May be the drop simply cyclical, or perhaps a sign of something more systemic in the world’s economy?

\”The extent of the weakness is puzzling,\” Governor Stephen Poloz said last week after he trimmed the BoC’s benchmark rate from 0.75 percent to 0.50 per cent.

\”We can attribute some of this,” he said. “But a lot of it we can not.”


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Krishen Rangasamy, economist with National Bank Financial, said there was a significant drop in trade volumes in May, but additionally a sharp downward revision of data for the prior month.

“It\’ll now have a miraculous recovery in June, highly unlikely in our view, to prevent the very first back-to-back quarterly contraction of trade volumes since 2009.”

Global trade hit historic lows following the financial crisis, but by 2011, it seemed trading volume between countries had improved, with development in that year reaching 6.2 per cent – just around the corner from the pre-crisis average of 7.1 per cent. But in the following years, trade started slumping again. In 2012, growth was just 2.8 per cent, while in 2013, it averaged three per cent.

Last year, the planet Trade Organization forecast that global trade would bounce back to 4.7 percent in 2014. They ended up being wrong. The level of goods traded around the world came in in a much weaker 2.8 percent. Trade growth has slumped below development in the world\’s gdp, which has averaged about three per cent in tangible terms previously few years.

There are a variety of factors beyond slow economic growth that explain the post-crisis slowdown in global trade

\”The post-crisis decline in the growth rate from the ratio of worldwide trade to GDP has been cause for some concern that global trade has peaked, and that we are now reaching a new normal by which trade levels is going to be weak compared to about a decade ago,\” said economists within an expansive report recently.

The persisting weakness has left policymakers around the world scratching their heads over what is going on. The Bank of Canada released a paper earlier this year trying to pinpoint the causes, blaming both cyclical and structural problems.

“?There are a number of factors beyond slow economic growth that explain the post-crisis slowdown in global trade,” the bank said in its report. “The most known include diminished incentives to grow trade, the changing composition of worldwide demand and increased protectionism.”