World trade falls in line with Great Depression trend

Global trade Mar10.jpgLast June, the blog noted research by Profs Eichengreen and O’Rourke that compared the current Crisis to the Great Depression. They have now updated their work to February 2010, 22 months after the Crisis began.

The positive news is that the stimulus measures taken by governments have caused world industrial production to recover. As they say, this is a cause for congratulation – although it is still not clear whether this recovery will continue as stimulus measures are removed.

In fact, the Profs emphasise that we are still 6% below the previous peak, and “considerable excess capacity remains in a number of important economies“. They therefore advise that stimulus measures continue.

But in their other 2 focus areas, World trade and Equity markets, the news is less positive. The current Crisis saw a sharper decline than post-1929, and the recent recovery has only brought us back to the trend seen in the Great Depression.

Their chart above of world trade volume highlights this, with today’s position (red line) clearly in line with the Depression trend (blue line). This is disappointing, given the size of the recent stimulus programmes.

It is also worrying, as the chemical industry is a major beneficiary from growth in world trade. China’s increasing use of anti-dumping duties, and growing US pressure to term China a ‘currency manipulator’, are worrying signs of the fragility of the current economic recovery.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. He also serves as a Global Expert for the World Economic Forum. The aim of this blog is to share ideas about the influences that may shape the chemical industry and the global economy over the next 12 – 18 months. It looks behind today’s headlines, to understand what may happen next in critical areas such as oil prices, China and Emerging Markets, currencies, autos, housing, economic growth and the environment. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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