World trade has been falling, but we still expect growth to return this year. We do notice large shifts in world trade as advanced economies – especially the US – are diversifying input sourcing. With extreme pandemic effects fading, supply chain problems are unlikely to return at the scale seen in recent years.
World trade has been contracting
Since the end of last year, world trade has shown clear signs of weakness amid softening demand. Since September, world trade has fallen by more than 5%. When looking at where demand has weakened most, it is interesting to see that the drop in imports was pretty evenly split between the large economic blocs. It is therefore not a story of falling European gas imports, but more a reflection of weaker economic activity related to goods.
Trade has been correcting in recent months in both advanced and emerging markets
China and other emerging Asian countries have seen the largest declines in export growth as global demand has weakened. When looking at how world trade has developed since the start of the pandemic, we saw a very fast recovery after the first lockdowns which was mainly due to fast export growth from Asia and import growth from the US and eurozone. When economies reopened more fully, we saw a moderation in trade growth which has now morphed into outright losses.
The pandemic shock to global consumption has likely played a large role in trade trends in recent years. The initial phase of the pandemic resulted in lopsided consumption towards goods, which has now reversed towards services demand.
Supply chain problems are easing rapidly
The main problems around world trade in 2021 and 2022 were related to supply chains. Transport costs soared on the back of container shortages, lockdowns caused production stops and inputs were in short supply. This resulted in soaring costs, high supply delivery times and depleted inventories. Since the middle of last year, more or less coinciding with the peak in world trade, we've started to see a turnaround in supply chain problems. They have eased substantially since then as global demand for goods has weakened and production capacity has been improving. Arrival availability of container vessels has also improved to 60% in February 2023 compared to 30% at the start of 2022 which helps to improve the global supply system.
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