The cyclical conditions of world trade

It is well known that the world economy is experiencing a progressive slowdown, which could degenerate into a real recession. World trade represents the transmission channel of the slowdown between the various economies: if global trade experiences a solid growth, the difficulties of the economies whose domestic demand is declining could be mitigated; conversely, in the face of a global trade slowdown, the recession could become deeper for those economies which are already struggling, and hit dynamic economies as well.
The analysis of the cyclical conditions of world demand is therefore key to understand the true degree of health of the global economy. The information currently available indicates a clear slowdown, but not yet a fall.

In order to understand the possible evolution of global demand in the coming months, it might be useful to explore which industries are the most affected by the current slowdown. The animation below allows to analyze the cyclical conditions of world trade (at constant prices), broken down by industry, between Q4-2017 and Q1-2019.

Start the animation using the "Play" button. Stop or pause the animation using the "Stop" button. If you want to start from the beginning, use the "Reset" button.

The animation clearly shows that the slowdown started at the end of 2017 for the Means of transport sector, due to the collapse in world sales of diesel cars. In the first half of 2018, while world trade in vehicles collapsed, all other industries were accelerating; growth reached a peak in the second quarter. During the summer 2018, the Trade War declared by Trump started to produce effects both on foreign trade (directly) and on investments (via expectations). Electronic goods, after growing by almost 15% (y-o-y) in Q2-2018, entered a phase of sharp slowdown; at the beginning of 2019, the growth in their trade flows was close to 0. At the same time, Investment assets reduced their growth rate from 10% to 4%. From the third quarter of 2018, other industries were involved in the slowdown, as well; the slowdown was particularly sharp for world trade of Raw materials.

Excluding Means of Transport, Electronic Goods, Investment Assets and Raw Materials, the slowdown in other industries has been limited and consistent with the indirect effects due to the slowdown in the first group of industries. This analysis therefore confirms that there are two main factors behind this slowdown in the world economy:

1. the deep technological-regulatory transformation of the car industry;
2. the trade war declared by the Trump administration.

In recent months there have been some signs that lead us to believe that the imbalance between the structure of supply and demand in the car industry is being overcome; the negative contribution of world trade in Means of transport should soon disappear, to then return positive. The current cyclical phase will therefore be increasingly linked to the evolution of the trade war that the United States has engaged with the rest of the world.