• Global Research
    • Macro and rates outlook

Trade, inflation & demand: As the tide turns

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Over the past couple of years, we have written much about the sharp rebound and strength in global goods trade. But the economic tides are turning and, with that, so too might the fortunes of trade.

Although our economists are not currently forecasting a global recession, the question of how likely one might be is at the top of minds for corporates and investors alike. Rising prices could lead to a downturn in consumer demand, with early signs that consumers in Western economies are already looking to curtail their spending on some tradeable goods. And, in the face of slowing consumer demand, there is a risk that some companies could be left holding excess supply after building up buffer stocks over the past couple of years, with inventories of S&P 500 companies topping USD1.1trn in the latest quarter.

And, even if a global recession does not materialise, the sharp bounce in global goods trade seen during the pandemic is bound to fade as spending on services picks up and demand for certain goods normalises. Already, consumer spending in the US is starting to rotate away from goods towards services, while the US National Retail Federation expects containerised retail imports to decline slightly year-on-year in both, September and October this year.

According to our analysis based on OECD data, exporters in economies such as Mexico, Canada, India and mainland China are most exposed to a slowdown in US consumer demand. In fact, our chief Asia economist recently cautioned that a trade recession could be on the horizon for the region amid slowing economic growth in the US and EU and a muted recovery in demand in mainland China.

On the other hand, a slowdown in goods trade flows could help to ease pandemic-related supply chain pressures. Spot container freight rates are already down 40% on their peak in September 2021, some shipping lines are doing away with surcharges levied during the pandemic, and delivery times for chips are showing initial signs of improving. However, it’s worth bearing in mind that logistics disruption is not yet over. Key ports are still congested and the war in Ukraine has renewed supply chain pressures for food and energy trade, in particular.

Therefore, it is clear that even through trade volumes are likely to remain high this year, a slowdown in international trade growth may be unavoidable in the near term.

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