Global trade has slowed since 2012 relative both to its strong historical performance and to overall economic growth. An analysis of the forces behind the recent growth slowdown in the volume of international trade by World Economic Outlook 2016, reveals that a major driver is slower growth in aggregate demand, particularly in investment, responsible for generating international trade flows in the form of capital goods and intermediate inputs. Reduced pace of trade liberalisation measures and the return of some protectionist measures and retraction of global value chains explain the slowdown in trade growth, writes Anjuli Gopalakrishna
Global trade growth has slowed down significantly in recent years. After its sharp collapse and even sharper rebound in the aftermath of the global financial crisis, the volume of world trade in goods and services has grown by just over 3 per cent a year since 2012, less than half the average rate of expansion during the previous three decades.
The slowdown in trade growth is remarkable, especially when set against the historical relationship between growth in trade and global economic activity (Figure 2.1). Between 1985 and 2007, real world trade grew on average twice as fast as global GDP, whereas over the past four years, it has barely kept pace. Such prolonged sluggish growth in trade volumes relative to economic activity has few historical precedents during the past five decades.
Source: IMF staff calculations. Note: Imports include goods and services. The charts are based on an unbalanced sample of 100 countries in 1960 and 189 in 2015. Annual aggregate import (GDP) growth is calculated as the weighted average of country-specific real import (GDP) growth rates, where nominal import (GDP at market exchange rates) shares are the weights used.
Is the waning of trade simply a symptom of the generally weak economic environment, or is it an outcome of a rise in trade-constricting policies?
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