Major Economies Report Falling Trade Volumes in July

Global trade has reportedly experienced a significant decline in recent months, with trade volumes falling at the fastest pace since the pandemic began. 

The slowdown in global trade can be attributed to various factors, including rising inflation, higher interest rates and a shift in consumer spending toward domestic services, the Financial Times (FT) reported Monday (Sept. 25).

One of the primary factors contributing to the decline in global trade is higher inflation, according to the report. Additionally, central banks worldwide have implemented rate rises to combat inflation, which further dampens consumer spending and weakens demand for exports. The contraction in trade volumes observed in July reflects the impact of these measures.

During the pandemic, there was a surge in demand for global goods exports, the report said. However, as economies reopened and lockdowns eased, there has been a shift in consumer spending towards domestic services. This shift has resulted in a decline in demand for imported goods, further contributing to the slowdown in global trade.

The decline in global trade volumes has been widespread, with major economies such as China, the eurozone and the United States all reporting falling trade volumes in July, per the report. China, as the world’s largest goods exporter, experienced a 1.5% annual fall in exports, while the eurozone and the U.S. saw contractions of 2.5% and 0.6%, respectively.

Economists now expect eurozone export volumes to remain flat on the year, a significant downgrade from the initial forecast of a 2% expansion, according to the report. While interest rates are not expected to rise further in the near term, central banks are unlikely to cut borrowing costs until there is evidence that underlying price pressures have been contained. The lack of credit easing is expected to continue weighing down on exports.

In addition to economic factors, geopolitical tensions and trade restrictions have also played a role in limiting export sales since 2018, the report said. The Paris-based OECD warned that geoeconomic fragmentation and a shift towards more inward-looking trade policies could curtail the gains from global trade and adversely affect living standards, particularly in the poorest countries and households.

An August report by the Wall Street Journal similarly attributed the slowdown in global trade to governments around the world curbing business with China, and geopolitical tensions exacerbated by Russia’s invasion of Ukraine.

That report also highlighted inflation and interest rate hikes as factors impacting business investment and consumer spending on goods.