The global economy's fragile state in 2023, shaped by rising geopolitical tensions, high interest rates, and elevated inflation, has led major institutions such as the IMF and OECD to project a bleak outlook for global growth in 2024.
Key economies, including Japan and the United Kingdom, have already slipped into technical recessions – defined as GDP contraction for at least two successive quarters – during the September-December quarter of 2023. This is troubling for India, as six major countries that are facing recession (Germany, Japan, Thailand, Malaysia, South Africa, and the UK) are key trading partners, making up 10% of its total trade.
Another factor impacting world trade is the Houthi rebels’ presence on the crucial Red Sea trade route, which is responsible for 12% of global trade. The rebel attacks have forced exporters to reroute a major share of their shipments away from the Suez, significantly increasing travel distances and costs. Going around the Cape of Good Hope adds around 6,000 km to trips connecting Europe and Asia, leading to increased freight and fuel costs for exporters.
In this edition of the Chart of the Week, we examine the trends in countries’ trade balances and assess their trade surplus/deficit. Emerging economies like India and China have witnessed sharp changes in their trade balances in 2023.
Emerging markets see steep monthly fall in trade balances in 2023
China, the world’s largest exporter, saw its trade surplus fall by 18.7% YoY to $264.2 billion in 2023 due to weak global and domestic demand for Chinese goods. Its trade surplus slumped the most in February 2023 by 87% MoM to $11.8 billion, following a 6.8% YoY decline in exports during January and February 2023.
Meanwhile, the US trade deficit increased by 11.1% in 2023. It widened by 24.5% MoM to $74.6 billion in April 2023, reaching its highest level since October 2022. According to the US Commerce Department, this marked the largest MoM increase in the trade deficit since April 2015, driven by a fall in the value of goods exports like crude oil.
As trade balances in China and the US moved negatively, India’s trade deficit expanded to an all-time high of $31.5 billion in October 2023. This surge was due to a 70% increase in oil, gold, and silver imports during the period.
From April 2023 to January 2024, India’s merchandise exports decreased by 4.5% YoY to $353.9 billion and imports declined by 6.7% YoY to $561.1 billion.
In January 2024 however, India’s trade deficit fell to $17.5 billion, an 11% improvement from December. This was due to a 6.9% MoM decrease in imports and a 4% MoM fall in exports. The export decline was driven by a rise in freight charges due to disruptions along the Red Sea trade route, which handles 30% of Indian exports.
Russia remained a major trading partner, accounting for 44.8% of Indian imports during the same period. India’s primary export destinations included Australia, Singapore, the United Kingdom, China, and the UAE. Rating agency ICRA expects India’s trade deficit to be between $20 billion and $25 billion in the remaining months of FY24, resulting in a current account deficit (CAD) of around 1.7% of GDP in Q4FY24.
Germany’s trade surplus increased by 41.5% in 2023, with the December trade surplus reaching its highest since January 2021 at $24.2 billion. This growth was driven by increased demand for German manufactured goods in the US, UK, and China.
Vietnam has emerged as a success story in global trade, posting a trade surplus for the eighth consecutive year. The country reported a trade surplus of $28 billion for 2023 as imports in 2023 fell 8.9% to $327.5 billion. Although exports also declined by 4.4% YoY to $355.5 billion, this was due to an 8.3% drop in smartphone shipments, its largest export item. To compensate for the fall in exports, Vietnam extended a value-added tax cut to boost domestic consumption.
