2022 was a year of upheaval for global trade, as Putin’s war turned major western powers against Russia, and the US imposed sanctions against China, a major trading partner. Higher inflation and rising interest rates also caused pain and shifted buying patterns. This caused global trade to grow at 12.3% to $32 trillion in CY22 - slower than the previous two years.
Key economies may also be facing recessions in FY24 – Germany, for instance, entered a technical recession in May 2023 as its GDP fell for two consecutive quarters in Q4FY23. This could put further pressure on trade growth.
In this edition of the Chart of the Week, we take a look at the trends in trade for major economies and assess their performance in exports and imports. Countries like the US and China have witnessed sharp changes in their trade balances in April and May 2023.
China is the world’s biggest exporter, leading the number 2 country, the US, by a wide margin. But it has struggled with demand in recent months. China’s trade surplus in May dropped 27% MoM to $65.8 billion, its lowest level since April 2022. Despite lifting its Covid lockdown restrictions in January 2023, lower demand for Chinese manufactured goods caused a 7.5% YoY fall in exports, much worse than the decline expected by Reuters (-0.4%). Imports also fell by 8% YoY.
On the other side of the world, the US saw its trade deficit widen by 23% MoM to its highest level in the past six months, at $74.6 billion in April 2023. The US Commerce Department claims that this was the biggest MoM worsening in the trade deficit since April 2015. The increase in imports due to high demand for imported manufactured goods, coupled with a decline in exports of energy products, has contributed to this deficit.
As China and US trade balances moved in the negative direction, India’s trade deficit contracted to its lowest level in the past 20 months at $15.2 billion in April 2023. But this is not necessarily a sign of rising exports.
India actually saw a 12.7% YoY decline in exports due to weak global demand. But it also witnessed a 14% YoY decrease in imports on the back of reduced commodity prices like petroleum. With imports falling faster than exports, India’s trade deficit narrowed.
Germany, on the other hand, provided a silver lining as its April trade surplus reached its highest level since January 2021 at $20.3 billion. Exports rose 1.2% MoM, driven by increased demand for German manufactured goods from the US, UK and China. At the same time, imports declined by 1.7% MoM, reflecting the country’s economic slowdown.
Vietnam has emerged as a new success story in global trade, with the small country making outsized progress in textile, chemicals and other exports. The country has turned a trade deficit into a surplus over the past year. However, Vietnam’s May trade surplus fell by 12.5% MoM to $2.2 billion. In April, the country’s exports had fallen by 17.1% YoY, while imports declined 20.5% YoY, aiding causing a net trade surplus that month.
