While several air cargo pundits are viewing 2016 under a general cloud of gloom, HSBC Bank is seeing a sunnier horizon for global trade. According to the latest findings from its latest Global Connections Trade Forecast and Trade Confidence survey, 64 percent of respondents said that trade volumes will increase over the next six months. However, that percentage is 11 points lower than the previous HSBC report’s findings for the first half of 2015.
China was a huge drag on world trade with its downturn in industrial production in the second half of 2015, but Asian economies will be the main drivers of global trade over the medium-term, with so-called “south-south” flows representing the fastest growing trade corridors, the survey found.
Brazil and Russia have also been weak in 2015, but like China, HSBC said it sees the downturn as cyclical rather than structural. “Despite the near-term challenges facing emerging markets, many of these economies benefit from strong economic fundamentals, meaning they are likely to be an important driver of global economic growth and trade over the medium term,” the survey found.
For this reason, the report is optimistic that stabilization in these countries could lay the foundation for a moderate uptick in world trade in 2016. The bottom line is that HSBC expects growth in global trade to recover to around 3 percent in 2016, picking up to 5 percent a year by 2018-20.
For now, however, HSBC expects trade growth by the end of 2015 to be only about 1 percent in terms of volume, despite the year’s strong first half. This figure is down significantly from 3.1 percent growth in 2014. Excluding the global financial crisis of 2009, the last time world trade fell below 2 percent growth was in the “dotcom bust” of 2001. Even in the early 1990s recession, world trade growth was stronger than it is now.
On the cyclical side, slow recoveries from the global financial crisis are to blame, the survey said, and on the structural side, lack of progress in trade liberalization, the rising proportion of shares of services and the maturing of global supply chains may have affected the ratio of world trade growth to GDP growth.
HSBC does expect import volumes in the U.S. and Western Europe to expand by 5 to 6 percent in 2016, which will help shore up world trade. Developed markets have gained favor, with 30 percent of survey respondents saying they are confident in Europe, up from 25 percent in H1 2015, and 17 percent giving a favorable rating to North America, up from 15 percent in H1 2015. The U.S. and the largest Eurozone countries should continue to spur world trade demand over the next couple of years, as HSBC expects GDP growth in those economies to expand in 2016-17.
It may come as a surprise that Singapore and Hong Kong suffered the largest declines in market confidence – more than 20 points for each – but it’s a reflection of the Asian slowdown. That said, Bangladesh is gaining ground, with the rising demand for clothing and apparel from Western markets. Another positive factor is the easing of credit conditions, with 48 percent of survey respondents reporting an improvement in their ability to access trade financing.
There is also optimism for North America due to the preliminary agreement on the Trans-Pacific Partnership (TPP). The TPP is intended to accelerate trade with Asian countries, but the agreement is not cast in bronze, and there are political storms that could block the TPP from ratification. Other important agreements include the WTO’s Trade Facilitation Agreement, which seeks to simplify customs procedures and is now up for ratification, and the Transatlantic Trade and Investment Partnership, a proposed free-trade agreement between the EU and the U.S.