The Economist explains: What slowing trade growth means for the world economy

by / Wednesday, 16 September 2015 / Published in Economy

THE global economy has stumbled from one pothole to the next in 2015. America's economy slowed to a crawl during an icy first quarter. Then fears of a Greek exit from the euro area worried markets. Now attention has turned to China, where the government is fumbling to contain a stockmarket rout and prevent a hard landing. In the background another ominous trend has been developing: world trade shrank on a quarterly basis in both the first and second quarter of this year: the worst performance since the height of the financial crisis. But how significant is a decline in trade for the global economy?Growth in world trade is generally a little faster than growth in global GDP. In the 1990s the former accelerated quickly relative to the latter. An era of what some have called "hyperglobalisation" began, driven forward by a number of trends: liberalisation in China and the former Soviet Union, a reduction in trade barriers and the creation of the World Trade Organisation, and the expansion of global supply chains facilitated by progress in information technology. But the faster pace of growth in trade has not been sustained. Since the global financial crisis, trade has grown only fractionally faster than GDP. Both cyclical and structural factors are contributing to a slowdown.On the cyclical side, the years of economic malaise in the euro zone are particularly important. …
Source: The Economy