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Business, Economy

Global Trade Slump Raises Concerns

Is history repeating itself? Global trade growth has experienced a sharp drop, which unfolds a disturbing indication of the financial crisis; imports and exports of goods have fallen far behind the pace as opposed to previous expansions, which is a threat to living standards and future productivity. For the third consecutive year, the rate of global trade growth is already trailing behind the sluggish expansion and growth of the world’s economy. This is the prediction of leading economists and is reflected in the data of the World Trade Organization. Before this slump in trade, the last time such an underperformance had occurred in an economic expansion was in 1983.

Robert Koopman, the chief economist of the WTO said this burst of globalization has been seen before and now we could be at the brink of retrenchment or consolidation. Trade growth had shown a sharp rebound after the financial crisis in 2010, but since then, it has averaged about 3% annually as opposed to the 6% growth that was seen from 1983 to 2008. The slowdown has been caused by a number of factors, according to economists, which range from a reduction in international investment to China’s departure from some types of manufacturing.

Economists have also blamed the dearth of trade barriers and trade agreements, which had been created after the downturn in 2008. The unwillingness of companies to source components and products far from home is also a contributing factor. Before 2008, the rate of trade growth was double that of economic expansion, but it is highly unlikely that this pace of growth will be seen any time soon. Global trade volumes saw an increase of 8.5% in 2006 in contrast with global GDP expansion of 4%. In the first half of this year, the WTO suddenly reduced its trade forecast, which was a first decline after 2009.

Now, the WTO is expected to cut its forecast for the second time in 2015. Most of this slowdown is a result of sluggish performance of emerging economies such as China, which had grown rather briskly in previous years. Due to this shift, economists are now left wondering if the trade-driven globalization has finally come to an end. Trade analysts and experts said that peak trade had been achieved in 2007.

The trade volumes may pick up in the second half of 2015, but there would only be a 1% growth and this is well-below the expected growth of 3.3%, which had been forecasted by the International Monetary Fund. There was a 14.7% decline in South Korean exports in August as compared to a year ago as there was a major drop in China shipments. During the 1980s and the 1990s, the Chinese manufacturing economy began its quick ascent and other emerging economies also moved up as trade was expanded because of collapse of the Soviet Union.

There was a sharp decline in trade in 2008 as credit dried up worldwide and economies went on a decline. Later, trade recovered, but it wasn’t able to return to its original clip. 

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