Global trade is expected to recover in the coming months on the back of advantageous foreign exchange movements, and the resurgence of China.
“In our view, leading indicators are suggesting that the slump in global trade will be rather shallow and short-lived,” noted the report recently published by Qatar National Bank.
It attributed the trade upturn to forward-looking investor expectations.
Promising anticipations of future earnings of the transport sector – a central indicator for future growth in global trade – are expected to stabilize and even slightly grow the demand for physical goods.
Global trade should have hit rock bottom in November 2022 and should go back to an expansionary mode in April of this year,according to the Dow Jones Transportation Average.
The DJTA is an equity index consisting of airlines, trucking, marine transportation, railroad and delivery companies, whose performance leads global exports by at least three months.
The report further added that developments in foreign exchange are also likely to further impact the progression of global trade.
“USD weakness, predicated in a more resilient European economy and more aggressive rate hikes from the European Central Bank and the Bank of Japan in recent months, is a major tailwind to global trade growth,” it said.
The report explained that global trade volumes see an increase when the US dollar drop, whereas the US dollar index has already declined 9 percent from the highs witnessed in September 2021.
“Around 40 percent of global trade flows are invoiced in dollars and a weaker dollar makes non-US imports cheaper. This increases disposable incomes or even supports the substitution of domestic products for imports, positively affecting trade volumes,” added the report.
Another point to support QNB’s analysis of global trade stabilization is the economic rebound of the Chinese economy.
In 2021, China’s performance declined due to a hasty retraction of stimulus policies, Zero Covid policies, a restriction on real estate activities and tighter regulation for numerous industries.
Since these policies are now all being reverted, China is expected to witness a significant economic rebound in the coming months.
“This will likely ignite investment and consumption in China, favoring trade volumes both in Asia and globally.”
The QNB report concluded that over the next quarter, the global trade volumes are set to see notable improvement and stabilization.
“However, it remains to be seen whether major headwinds coming from monetary tightening, policy uncertainty and a more hostile geopolitical environment will lead to negative outcomes later in the year,” it added.