World trade is changing – can the CEE profit? Since September 2022, world trade has fallen by around 4%. The pandemic shock to global consumption has played a large role in trade trends in recent years. The initial phase of the pandemic resulted in lopsided consumption towards goods, which has now reversed towards services demand. Businesses also increased inventories early last year as supply chain problems persisted, which is now reversing.
While the ‘bullwhip effect’ of stockpiling across the supply chain added to trade volumes earlier, the process of stock reduction now creates extra slack in the figures. Although this process was not finished yet in the first quarter of 2023, we expect trade to recover mildly over the course of this year on the back of the reopening of China and further easing of supply chain problems, starting at the end of the first quarter. All in all, we expect total trade to grow at just 1% compared to last year, with 2024 offering a 2% gain in trade volume. This means trade will drop below global GDP growth and is expected to continue in the slow lane compared to long-term averages.
The upside risks to this outlook relate to our sluggish growth outlook for advanced markets. If a faster growth pace was to be maintained, this would clearly increase our expectations for global trade growth. Also, the current consumption mix is still favouring services compared to goods as consumers are catching up on leisure activities that were restricted during lockdowns. If that were to switch back more quickly, this would be a boon for global trade.
Recent years have been characterised by wake up calls for global trade. From lockdownled supply-chain disruptions to the US-China trade war, and from the Suez blockage to war and sanctions, the very globalised production model has been challenged a fair bit. In response, deglobalisation has become a key theme in economics, but the question is how that is really going to play out. It looks like diversification of sourcing products is the most dominant response to the supply chain problems seen in recent years.
Since 2016, we have seen steady increases in diversification of imports from advanced economies. Interestingly, we do see notable differences between Europe and the US. In the EU, we note relatively little diversification so far outside of the pandemic shock.
The US is the main diversification force at the moment. American imports are now a lot more diversified than they were in 2016 and this is mainly driven by a clear trend towards a lower dependency on China for imports.
Still, we expect diversification of imports to also increase further when looking at Europe; think of the swift move away from imports from Russia. ‘Friendshoring’, or closer trade ties with geopolitical allies, is likely to be a theme of the coming years and the big question is whether CEE can gain from this development. With world trade growing moderately, there are still opportunities to accelerate export growth if positioned well towards the right markets.
