Global Trade Boom Reverses Course as China Exports Slump

The Bloomberg Trade Tracker is showing a more somber outlook for world trade, led by slumping sentiment from factories in several key countries.

German business expectations remained almost five standard deviations below normal in October, and Singapore’s PMI for electronics sunk into “below-normal” territory for the first time since the early days of the pandemic. (Follow the Tracker’s regular updates here.)

Figures Monday showed industrial production in Germany held up in September, but according to ING Economics, “macro data and events of the last week, however, confirm our view that the economy’s long slide into recession continues.”

Equally troublingly, both of the world’s two biggest economies are feeling glum about the export outlook, with both the US and China gauges in contraction in October and the American one in “below-normal” range on the Tracker.

Beijing’s Covid Zero policy and the questions surrounding the return to normal factory operations in Asia remain a headwind. That dynamic was evident in fresh data Monday that showed China’s exports and imports both unexpectedly fell for the first time in more than two years.

Unseasonal Slump

China's exports usually peak in December each year, but that happened much earlier this year

Data set for release on Tuesday may show Taiwan’s exports fell 6% in October, according to economists' estimates.

Meanwhile, alternatives to China Inc. are anticipating the slowdown will reach their shores. Vietnamese manufacturers are facing a significant drop in orders for a slew of goods including sneakers and smartphones amid quickening inflation denting demand from countries including the U.S., Japan and in Europe.

All told, half of our Tracker’s gauges have fallen into “below-normal” territory, with the other five clinging to “normal” status, judged by z-scores that measure the latest data against their long-run averages.

Deeper Downturn

In the months ahead, Nomura Holdings economists see a “deepening downturn” in export growth from Asia, with the latest reading on their three-month leading index reflecting meaningful weakness in China’s imports, the global tech cycle and a key Shanghai shipping measure. The Nomura gauge suggests more countries will suffer export contractions in the fourth quarter, the analysts wrote last week.

On the bright side, Citi economists said in a recent note that its global supply pressure index, on the mend since May, is now hovering near levels similar to what was seen in the third quarter of 2020 and the global manufacturing expansion of 2017-18.

“All three key components of the index — transportation costs, global purchasing managers indexes, and measures of inventory performance — show normalizing conditions,” Citi economists led by Nathan Sheets wrote in a note. “These dynamics suggest that goods inflation should continue to cool in coming months.”

Source: Bloomberg