The recovery of global trade is “not being spread equally”, as the US outpaces the eurozone and the UK underperforms, according to new analysis by ecommerce and payment platform Tradeshift in its Q2 Index of Global Trade Health.
Unsustained momentum
Global trade activity had “strong beginnings” this year, but did not “sustain its recent momentum” during Q2, according to the report. This, its authors explain, is a result of falling orders in June:
“Activity levels started the quarter robustly but waned in June due to a sharp decline in order volumes. This latest data halts a six-month growth streak, suggesting that the recent acceleration in global trade activity may be levelling out.”
This order slowdown may be a “blessing in disguise”, however, the report argues. A rise in global order volumes over the previous six months of “frenetic growth” meant suppliers had become unable to meet demand in some cases. A so-called ‘bullwhip effect’ following the end of pandemic lockdowns meant increases in demand had caused “significant disruptions further down the supply chain”.
The Red Sea crisis has created further issues in recent months. The increasing cost of freight and port delays “could recreate the bottlenecks that plagued supply chains throughout 2022”, the authors argue.
“The current decrease in orders may reflect buyers’ efforts to prevent a recurrence of such disruptions.”
Eurozone woes
Eurozone trade activity “started the year brightly but has now settled into a more pedestrian rhythm”, the authors note.
While invoice volumes reached “anticipated levels for the first time in two years” as recent new orders “worked [their] way through supply chains”, a more recent drop in orders during Q2 means “this may be as good as it gets”.
“Factory output across the region fell to its lowest level in six months in June, with new orders, purchasing activity, and employment all declining sharply,” the report explains.
Explaining the poor performance, the report says:
“Political uncertainty in France has significantly impacted local businesses, leading many to delay placing new orders. Meanwhile, Germany is struggling to gain momentum as it faces stiff competition from China in the automotive sector.”
Friendshoring accelerates
Geopolitical tension, leading to onshoring, nearshoring or ‘friendshoring’ of supply chains away from nations at risk of exposure to the risk, is proving of benefit to some countries more than others.
Vietnam has been a particular beneficiary of diversification of multinational companies’ manufacturing operations, the report states. Trade activity in Vietnam has been growing at a “remarkable rate” that is eight times faster than the global average. The report highlights the recent US$16bn investment by Apple in Vietnam-based manufacturing as an example of this growth.
Malaysia is also seeing rapid growth in trade activity of four times the global average, while India’s vast pool of English-speaking STEM graduates has helped it attract major new investments from US tech firms like AMD.
Beyond Asia, Mexico is also attracting outside investment as low labour costs and “low distribution expenses for North American brands” prove enticing for multinationals.
UNCTAD input
Early last month (2 July), United Nations Trade and Development (UNCTAD) published new statistics painting a more positive picture for global trade as a whole, suggesting that Q1 growth was strong.
The UNCTAD Global Trade Update showed the bulk of the growth was from increased exports from three nations: China (9% growth), India (7%) and the US (3%).
On the outlook for the rest of the year, UNCTAD said:
“The short-term trade outlook is cautiously optimistic as the global forecasts for GDP growth remain at around 3% for 2024. If positive trends persist, global trade in 2024 could reach almost $32trn, but unlikely to surpass the record level seen in 2022.”
Of particular note was the strength of trade between nations in the global south, which increased by 2% on both exports and imports. Countries in the global north saw no percentage boost in imports and only a 1% rise in exports.
WTO tool
The World Trade Organization launched a new tool for understanding trade over the last year today (31 July).
‘World Trade Statistics 2023 – Key insights and trends’ is an interactive online tool “presenting key data and trends for international merchandise and commercial services trade in 2023”, allowing users to filter by region, product or services industry where applicable.
It comes as the organisation issues its 2024 annual report, where director general Ngozi Okonjo-Iweala has said that, “despite trade tensions, political uncertainty, and shocks like COVID-19, world trade has been remarkably resilient in recent years”.
“The future of trade is services, digital, green — and it must be inclusive. This Annual Report describes how, over the course of 2023 and through to our 13th Ministerial Conference in Abu Dhabi in February 2024, the WTO and its members moved forward on all these fronts, helping build the enabling environment for trade's evolution in the years ahead.”