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Credit insurer pessimistic on global trade growth

trade and economic growth are becoming increasingly disentangled with 2016 likely to be the first year in more than a decade in which the pace of trade growth fails to match the pace of GDP growth

After low growth in 2015, global trade growth has slowed even further in 2016, according to a new report from trade credit insurer Atradius.

The Economic Outlook which analyses major economies around the world reports that trade is shrinking in emerging Asia, the world’s second largest trade bloc, as China rebalances from investment-driven growth toward a more inward-looking consumption-led growth. Lower commodity prices have also dampened investment in natural resource-rich economies around the world which has contributed to a sharp contraction of trade in Eastern Europe and a slowdown in Latin America.

The US has also seen its trade growth grind to a halt, due to lower investment in the oil and gas sector, but also because of lower external demand and a strong US dollar which have reduced exports.

The insurer suggested that trade and economic growth are becoming increasingly disentangled with 2016 likely to be the first year in more than a decade in which the pace of trade growth fails to match the pace of GDP growth. It also describes how anti-globalisation sentiment is rising, as is evidenced by political developments like Brexit and the election of Donald Trump as US president. Trade liberalisation efforts like the Trans-Pacific Partnership (TPP) TPP and Transatlantic Trade and Investment Partnership (TTIP) are stalling, thereby threatening the outlook for trade.

Reduced trade growth could put upward pressure on insolvencies in countries that are dependent on international trade. In addition, Brexit-related uncertainty is expected to increase corporate bankruptcies in economies with a heavy focus on exporting to the UK. Protectionist measures in the US could have the same effect on economies with high trade ties to the US, especially those in Latin America.

“Matters for trade are made far worse by political developments,” said John Lorié, global chief economist at Atradius, “These are trade-unfriendly, as signalled not only by the Brexit vote in the UK but also by the stalling of the regional trade liberalisation efforts. Anti-trade rhetoric by US president-elect Donald Trump makes matters even worse. These developments are likely to weigh on future trade data.”

The stalling progress of agreements such as TTIP are threatening global growth, says Atradius

The stalling progress of agreements such as TTIP are threatening global growth, says Atradius

The insurer’s economic outlook warns that while the economy’s reaction to Brexit so far has been resilient with the severity of the initial jitters largely reversed, uncertainty increasingly clouds the 2017 outlook. It reports that the rapid appointment of the new prime minister and aggressive monetary stimulus has delayed the risk of recession with the weaker pound easing pressure on the sustainability of the UK’s large current account deficit. However, the accompanying adverse effects will come into play in 2017.

Attradius also reminds that the weak pound is expected to cause prices to rise 2.3% in 2017, with fixed capital investment expected to contract nearly 8% – compared to a 1% expansion this year. Uncertainty, combined with rising inflation will also weigh on consumer sentiment and consumption which is set to contract 2% next year.

Stuart Ramsden, Commercial Director UK & Ireland, at Atradius, said: “2017 heralds a further period of instability and, looking beyond this, the outlook is also increasingly uncertain,especially with indications pointing towards a ‘hard’ brexit with access to european markets under threat.

With inherent risks built into the future and uncertainty prevailing, businesses must ensure that they operate with a robust risk-management strategy to protect themselves from the Brexit fall-out. However, while a cautious approach cannot be overstated, it is important that businesses do not stand still. New global trade opportunities are still out there with the rewards of growth attainable to businesses that the right steps and protect against the risks”.

About Ralph Savage (138 Articles)
Insurance and legal journalist Ralph Savage has written extensively for the financial and professional services sectors, most notably as News Editor of Post Magazine. He ghost writes regularly on behalf of FTSE 250 CEOs, leading counsel and senior professionals including solicitors, insurers, accountants and brokers.

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