Global trade drops at the fastest rate since pandemic

According to figures closely monitored, the world trade volume fell at its fastest annual rate in almost three years during July. This indicates that rising interest rates is beginning to affect global demands for goods.

Trade Volumes were down by 3.2 percent in July, compared to the same month in the previous year. This is the largest drop since August 2020 when the coronavirus outbreak began.

The Netherlands Bureau for Economic Policy Analysis (CPB) published the latest World Trade Monitor figures, which followed a 2.4% contraction in June. This added further evidence to a slowdown of global growth.

The demand for goods exported worldwide has declined after the pandemic. This is due to higher inflation rates, the rate hikes of the central banks around the world in 2022 and the increased spending on domestic services when economies reopened.

Export volumes fell in most parts of the world in July.

China, which is the largest exporter of goods in the world, saw its annual output fall by 1.5 percent, while the eurozone contracted by 2.5 percent, and the US experienced a 0.6% decline. Sentiment indicators suggested that world trade would remain weak in the coming months.

S&P Global’s purchasing managers index, which tracks new export orders, showed a sharp contraction across the US and UK in August and Septembre. The eurozone export volume is expected to remain flat for the year after economists predicted a 2 percent growth at the beginning of the year.

Although interest rates aren’t expected to increase further in the next few months, central bankers are unlikely to reduce borrowing costs until they have more evidence that price pressures are contained.

Analysts think that the lack of credit ease will continue to drag down exports.

Ariane Curtis is a global economist with Capital Economics. She said that the global trade could take several months to reach its trough due to the delayed impact of high rates on the demand for certain products.

Curtis predicted that the demand for goods often purchased with borrowed funds, such as automobiles, home furnishings, and capital goods, would be most affected.

Mohit Kumar is an economist with Jefferies. He said that trade would likely follow the trend of global economic growth.

Geopolitical tensions also affected trade, along with a weaker economy.

The Paris-based OECD’s latest Economic Outlook highlighted the impact of trade restrictions on export sales.

The OECD has warned that “geoeconomic fragmentation” and a shift towards more inward-looking policies in trade would reduce the gains of global trade, and lower living standards in poorer countries and households.

CPB reported that the global industrial production dropped by 0.1 percent compared to the previous month. This was mainly due to sharp drops in Japan, the eurozone, and the UK.

US industrial production was up by 0.7 percent, raising hopes for a soft landing in the world’s biggest economy. Inflation has fallen back to acceptable levels without triggering recession.