Comments due by Feb. 26, 2016
Weighed down by currency fluctuations, stagnant demand and volatility among commodities, international trade ultimately will hamper and constrict global economic growth this year, according to a report released Monday by the Organisation for Economic Cooperation and Development.
The OECD releases a handful of reports each year to highlight its short- and long-term growth projections, and Monday's report marks the second consecutive downward revision of note in the last few months.
In part because of a "deeply concerning" negative trend in trade growth, the organization bumped down its 2015 economic expansion estimate to only 2.9 percent from September's 3 percent, OECD Secretary-General Angel Gurría said in a statement Monday. That September headline number already had been bumped down from a 3.1 percent projection in June.
For comparison's sake, the global economy grew by more than 3.3 percent in 2014 and by nearly 3.2 percent the year before. Should 2015's projection hold, it would be the worst year for global growth since 2009.
"Since the crisis, we have become used to a familiar pattern: springtime optimism followed by downgrades in growth forecasts as the year progresses. 2015 is no different," Gurría said. "Global trade, which was already growing slowly over the past few years, appears to have stagnated and even declined since late 2014, with the weakness centering increasingly on emerging markets, particularly China. This is deeply concerning, as robust trade and global growth go hand in hand.
"Over the past five decades, there have been only five other years in which trade growth has been 2 percent or less, all of which coincided with a marked downturn in global growth," Gurría said, noting that "the slowdown in China" is "hitting activity in key trading partners."International trade is expected to expand by only 2 percent this year, according to the OECD. That's down significantly from the 3.4 percent trade growth seen in 2014 and would be one of the worst expansion numbers the world has seen in years.
China for years has been considered an international commerce titan, but the country's import and export numbers have been going downhill fast in recent months. Trade data released Sunday showed Chinese exports in October were down 6.9 percent year over year, markedly worse than the 3.7 percent shortfall seen in September. Imports, meanwhile, plunged 18.8 percent year over year.
Exporting nations who have relied on Chinese firms and consumers to buy their products have mostly fallen on hard times in response. Russia and Brazil, in particular, are examples of nations who have slipped deeper into recession as Chinese demand cools. The OECD projects the Russian economy will contract 4 percent this year, while the Brazilian economy will shrink 3.1 percent.
But those countries are essentially getting hit with an economic double whammy from China. Not only are Chinese industries buying smaller quantities of their goods, but because China accounts for such a huge percentage of global commodity consumption, a slowdown there will affect prices around the world. Commodity exporters like Brazil and Russia are now forced to sell their products at a cheaper rate worldwide just to make a sale, which means their profit margins even outside of China are vulnerable.Both nations are heavy exporters of raw materials and commodities like iron ore and crude petroleum. Brazil exports more products to China than it sends to any other nation, according to the Observatory of Economic Complexity. And China is the second-most popular destination for Russian exports, according to the OEC.
"Europe and the U.S. are small industrial commodity users compared to China. China consumes almost 50 percent of global industrial commodity consumption. And so if China slows down, the demand for industrial commodities goes down," Swiss investor Marc Faber said in an interview earlier this year on CNBC's "Trading Nation." "It affects all of the resource producers."
America is largely shielded from trade fluctuations because its economy is primarily consumer-driven rather than export-dependent. The OECD notably didn't revise U.S. growth down at all in its latest series of projections, highlighting America's reliance on consumer spending rather than trade to push its economy forward.That includes Canada as well. America's neighbor to the north slipped into a recession earlier this year in part because of pricing and demand volatility for some of its primary exports. Minerals, metals and precious metals – all of which have been vulnerable to price fluctuations in recent months – account for nearly 41 percent of Canada's exports, according to the OEC.
Still, a weakened and volatile international marketplace can change the dynamics of how the U.S. does business on a global scale. Data from the Census Bureau in September showed China surpassed Canada as America's No. 1 trade partner so far this year in terms of goods alone.
Canada had long enjoyed a trade relationship with the U.S. that no other country could match, but China this year managed to shake Canada loose. American imports of Canadian goods were down more than 10.5 percent in the first nine months of the year compared with the same window last year, largely a result of further depressed oil prices in 2015.
Canadian trade with the U.S. could have been bolstered by the controversial Keystone XL pipeline extension project that had been batted around for years before President Barack Obama ultimately declined to grant his necessary approval last week. The pipeline would have stretched nearly 1,200 miles and helped to connect oil facilities in Western Canada with the Gulf Coast. Conservatives counting on the deal to generate temporary jobs and bolster America's diminished oil industry were far from pleased with Obama's move.
"The long-term growth of the U.S. economy is intimately linked to our trade and investment relationships with Canada and Mexico," Matthew Rooney, director for economic growth at the George W. Bush Institute, said in a statement Friday. "How can it not be in our national interest to build the roads, bridges and pipelines that carry those goods and services?"
Those hoping global growth would be jump-started by a massive U.S.-Canada pipeline project now will need to look elsewhere. And while the OECD expects trade and overall growth to pick up in 2016 and 2017, there's still a lot of time for conditions to turn south.
"The global outlook is something of a good news/bad news story," a team of researchers at IHS Global Insight wrote in a research note last month. "The good news is that the (known) threats to global growth will likely not kill the expansion. The bad news is that any acceleration could easily get delayed another year." (US News)
What I find most surprising in this article is the downsizing of imports from Canada and the competition that China has overtaken Canada as a major U.S importer of goods. What I don't understand is how does the Keystone XL pipeline rejection by President Obama affect the importing of goods relationship?
ReplyDeleteA theory speculating about the downfall of the global economy is the unfair competition from the artificially cheap imports from China, especially in the industrial (steel) market as China manufactured more than India, Japan, U.S and Russia combined.
In a CBS Economy Article (http://www.cbsnews.com/news/global-growth-concerns-slowdown-us-economy/), they state that private forecasters have estimated a 2 percent US economy growth for 2016, but if incorrect; the OECD has "already downgraded its forecast this year" in preparation for the worst which i believe is a very smart idea considering the current US economy momentum.
Trade continues to be, as exhibited by this piece an important economic indicator that signals as to whether the economy is in growth or decline. Even more important are its implications on the global marketplace, and whether imbalances within the circulation of trade will inevitably affect the balance of the economy.
ReplyDeleteNegative externalities associated with China's economy continue to seep into other parts of the world, readily evident in the contractions in Russia and Brazil for example, due to a decrease in Chinese demand.
The temperature of trade in today's global economy is even more evident due to how much dependence the world has on China and how much China is dependent on the world. For example, China's status as a significant commodity consumer causes other countries to have to resort to selling in different marketplaces after being so accustomed to being able to sell to China is another example of the virtually volatile balance of the world's economy .
Trade of China had gone downhill in recent months , and It has been considered an an international comer titan for years before this happens. The trade data showed that chineses exports in October were down 6.9 percent year over year. The exporting nations that relied on Chineses firms and customers have also experienced hard times . It is huge impacts to the world economy since China accounts for such a huge percentage of global commodity consumption. It does not only affect Chinese industries to buy smaller quantities of their products, the slowdown also affects price around the whole world. Due to the reason the America is primarily consumer driven rather than expert dependent, TAmerica’s reliance on consumer spending rather than trade to push up its economy. that is the reason why the downhill of China’s trade didn’t revise the US growth.
ReplyDeleteThe article sparked my interest and I glanced at some of the economic data for China on a great site called Tradingeconomics.com. The concern is real in terms of the impact that a slow down in the Chinese economy is having on smaller countries who rely on the export of their goods to nations such as China. The theories being discussed in class are great and have good intentions of growth but I think it is the consumption piece that drives the growth of a country organically. We find ourselves at recurring impasses every time the economies of nations become intertwined. Is there a point in which the possible trade costs outweigh the benefits? In business there is inherent risks associated with a manufacturing company that has one sole supplier of important raw materials that they need to produce certain goods. The risk is if the one supplier misses an order or goes belly up then that strikes at the heart of the manufacturing companies business, then they may fall victim to bankruptcy. It creates a vicious cycle and it appears as though too many of the export dependent countries have relied on the large economy of China and were left at risk to a situation we see today. Always looking for a solution, if central banks of other nations don't step in we may very well fall into a recessionary period on a global scale similar to 2008.
ReplyDeleteThe decrease in global expansion, and ultimately the worst year for economic growth since 2009 is the ultimate downgrade in the springtime, as mentioned by OECD. China's hit to the trade market causes the domino effect to exporting nations, which threatens the lull in the acceleration of global expansion, but does not leave any nation in a stalemate with future development. This drag will only slow the process however Canada and United States' attempt to increase global growth is a valiant attempt to keep the expansion moving toward the right direction. China's trade hiccup will cause waves no doubt, but I hope to see any attempt by the WTO to kickstart the Chinese trade market to keep up the exporting of other major trade partners including Russia and Brazil. How can we turn this small downturn around? What other steps can we take to ensure this decrease can be stopped at these all-time low rates since 2009?
ReplyDeleteChina has long been one of the most reliable sources of growth in the world economy and its recent slowdown was likely inevitable, and was always destined to have a global effect. Additionally, this slowdown has come at a particularly fragile time with low oil prices and a lot of moving political factors that make projecting the global consequences of this slowdown even more difficult. While this is certainly a time to be concerned, China’s slowdown will allow the U.S and the world to truly find out how dependent our financial markets and global growth rate are on the Chinese economy and markets.
ReplyDeleteAnother factor that complicates the discussion and projections regarding China are their official growth rates. Despite the Chinese government releasing the lowest rate since 2009, at 6.8%, some economists familiar with the Chinese economy and government are asking whether growth is actually slowing more quickly — There has been longstanding speculation and discussion about China’s habit of fabricating economic figures in increase global confidence in their markets. This concern becomes particularly relevant when we see the trouble with the nation’s currency; igniting concerns over the sustainability of Chinese output levels.
Unfortunately, these events unfolding in China have an unfavorable effect on countries that are reliant on raw materials, such as Brazil. It is important to note that any negative consequences felt by emerging nations like Brazil will surely have a ripple effect that will reach more developed countries — Largely due to the fact that emerging markets play a big role in global trade and consequently global growth.
The U.S is about to find out just how consumer-based their economy is and how attached confidence in our financial markets are to the ones in China. With any luck consumer spending will shield the U.S from any massively serious downturns and this scare in China may lead the U.S to take proactive steps to protect the domestic economy from being seriously affected by Chinese downturns in the future.
China has long been one of the most reliable sources of growth in the world economy and its recent slowdown was likely inevitable, and was always destined to have a global effect. Additionally, this slowdown has come at a particularly fragile time with low oil prices and a lot of moving political factors that make projecting the global consequences of this slowdown even more difficult. While this is certainly a time to be concerned, China’s slowdown will allow the U.S and the world to truly find out how dependent our financial markets and global growth rate are on the Chinese economy and markets.
ReplyDeleteAnother factor that complicates the discussion and projections regarding China are their official growth rates. Despite the Chinese government releasing the lowest rate since 2009, at 6.8%, some economists familiar with the Chinese economy and government are asking whether growth is actually slowing more quickly — There has been longstanding speculation and discussion about China’s habit of fabricating economic figures in increase global confidence in their markets. This concern becomes particularly relevant when we see the trouble with the nation’s currency; igniting concerns over the sustainability of Chinese output levels.
Unfortunately, these events unfolding in China have an unfavorable effect on countries that are reliant on raw materials, such as Brazil. It is important to note that any negative consequences felt by emerging nations like Brazil will surely have a ripple effect that will reach more developed countries — Largely due to the fact that emerging markets play a big role in global trade and consequently global growth.
The U.S is about to find out just how consumer-based their economy is and how attached confidence in our financial markets are to the ones in China. With any luck consumer spending will shield the U.S from any massively serious downturns and this scare in China may lead the U.S to take proactive steps to protect the domestic economy from being seriously affected by Chinese downturns in the future.
The economic state of china and their economy's impact trickles down and is felt across the world. This year has been a bad year for those associated with china. The devaluation of their currency allows for them to export more goods increasing their GDP because it gives others more PPP. However, this negatively impacts the global economy and this year sent the markets into a state of panic fearing China. China shutdown their whole stock exchange in q4 since they follow different standards to deal with shocks. This shock is due to the commodities that china consumes decrease affecting exporters along with the recent overflow of oil in the markets. America and Western European Nations feel minimal impact since their relations are not dependent on china. This slowdown in china will cause a global slowdown which hurts the emerging markets who do not need any more barriers to hurdle.
ReplyDeleteThe OECD (Organization for Economic Cooperation and Development has shown the second consecutive sinking projection. It shows that it has been the worst year for global growth since 2009. In 2015 international trade has been expected to expand by only 2%, a significant decrease compared to the 3.4% of 2014. The reason for these negative numbers is the influence from the slowdown in China’s economic growth. In October China’s exports were down 6.9% and its imports plunged by 18.8%.
ReplyDeleteWhat fascinated me more about this article is the influence China’s economic slowdown has on other economies such as Russia’s, Brazil’s, and Africa’s in general. China is the major commodity consumer in the world; alone it consumes 50% of global industry commodity consumption. With the commodity consumption from China reduced Russia and Brazil are forced to start selling commodities at cheaper prices. The OECD projects a shrink in the Russian and Brazilian economy; reciprocally by 4% and 3.1%. Although not mentioned in this article many African countries dependent on Chinese investments has suffered from this crisis.
Since American economy is” consumer-driven” rather than “export-dependent” it protected itself from these trade variabilities. Nevertheless a fluctuating market influences the way the U.S. handles its international trade.
According to the World Bank, China's GDP growth has been shrinking every year since 2010. Whereas previously, it was very common (and expected) for China's GDP to grow by about 10%, we have seen a steady decline in recent years, and currently China's GDP growth sits at 7.3% in 2014. Additionally, while the global average of exports of goods and services as a percentage of GDP has either grown or remained stable since 2010, China (an economy that is heavily reliant upon exports), has seen a decrease in exports of goods and services as a percentage of GDP from 26.2% in 2010 to 22.6% in 2014. Conversely, the European Union has seen an increase in exports as a percentage of GDP. Furthermore, as the article stated, China's imports of goods and services as a percent of GDP has been falling steadily as well. In 2010, China's imports as a percent of GDP were 23.2% but this has declined to 18.9% in 2014. These numbers all support the fact that there has been a considerable slowdown occurring in the Chinese economy for the past 5 or 6 years. The troubled Chinese stock markets prove this even further. Unfortunately, this problem has been negatively impacting the global economy (although at a much slower rate than seen in China). Countries that rely on Chinese importing, like Russia or Brazil are being hurt. In Russia's case, where the country is already in a deep recession from oil volatility and sanctions (Brazil is also in a recession to a lesser extent), China is only deepening the wound. Fortunately China's woes have not yet largely impacted western countries like members of the EU and the United States in particular. Although Obama did not approve of the Keystone Pipeline, our economy has largely been performing well, especially in comparison to countries like China, Brazil and Russia. This is due in large part to the boom in the domestic shale oil industry in the United States, and fairly strong consumer spending over the past couple of years. It will be interesting to see how long the global economy can sustain itself with China, Brazil and Russia all in economic declines, and many more countries suffering from stagnation. Three of the most important factors for the United States to watch out for in particular are oil production and prices (the US must maintain high domestic oil production in the near future, enough to keep oil prices down), consumer spending and manufacturing performance, and the impact of the TPP, where the United States will be doing business and trades with some countries that are in much weaker economic positions.
ReplyDeleteTrade is a very strong factor in the growth of global economy. It is evident that when demand in one country falls, other countries feel the negative effects. Right now the economy is extremely vulnerable as oil prices are dropping to record lows. It is interesting to see how dependent our markets are upon each other, and it is important to be concerned about economies other than just our own, because those are what build ours.
ReplyDeleteBrazil is feeling the wrath of Chinese trade reduction, as will other countries that rely heavily on exporting raw materials to the Chinese. Soon, less dependent countries, perhaps the US, will see the implications that the contractions have, and we will be better able to adjust consumption habits. Hopefully the ripples do not turn over to ruin economies globally.
The above article depicts how the wellbeing of one economy can heavily impact another. The suffering economy in China will have serious impacts on other economies, which rely on china for a lot of their trade and goods. Many are becoming very concerned because according to the article, the state of China's economy has been getting worse since the year 2010.
ReplyDeleteBecause of the negative impacts, people are concerned about the global economy as a whole- as many exporting nations have been hit hard with the trends that China's economy have been expressing.
While we may all agree that there are definable gains from trade in general circumstances, it is imperative we critically observe the limit of these gains. China’s economy has been slowing down immensely in the past fiscal year, with exports down 6.9% and 18.8%. While China has been one of the United States’ closest trading partners, it may be wise for the United States to back away from the burning ship.
ReplyDeleteThe decline of China’s demand for imports is causing upset in many nations’ planned economic development, namely Russia and Brazil. However, these two countries are not the only ones facing economic devastation. China’s decline will undoubtedly cause ripples of economic upset to move across the global economy.
The United States has experienced some cushioning from these global trade events, as our economy is widely consumer-dependent rather than dependent on international trade. However, without precedent it is unclear whether this padding will be sufficient to protect our economy from experiencing residual effects. I believe it is not sufficient alone, and we should seriously look at moving our trade reliance away from China’s shrinking economy.
At first, I was also surprised to know that the imports from Canada were becoming more scaled down. The Chinese economy has influenced the United States for years, as our country has relied on China for most of their imported goods. It only makes sense that when the Chinese economy changes that the other countries becomes affected by this. After reading this article, I began to understand how Canada's trade relationship with the United States was affected as China swooped in to become the number one trading partner of the US.
ReplyDeleteThis article is a prime example of how one country's trade relations can effect other countries. The increase in the sales of Chinese-made goods in America has made China the number one trading partner of America, overpassing Canada, the previous number one. Canada had long enjoyed a trade relationship with the U.S. that no other country could match, but China this year managed to shake Canada loose. American imports of Canadian goods were down more than 10.5 percent in the first nine months of the year compared with the same window last year, largely a result of further depressed oil prices in 2015.
ReplyDeleteIt is evident that a slow down in China's economy has global implications. This is because many countries are export/import dependent, unlike the United States which heavily relies on consumption. It makes sense that a stagnation in trade growth will affect overall growth throughout the world. As for the reasons for stagnation, it seems it is mostly due to the fact that chinese indsutries are buying less goods from other countries. China consumes about 50% of global industrial commodity consumption so if companies in China slow down their buying capabilities it forces the suppliers of such goods to make price cuts in order to stimulate demand from other buyers. The influence China's trade has on the global economy is fascinating and only time will tell how significant China will be for overall economic growth.
ReplyDeleteI think it was interesting to learn that the U.S. is virtually unaffected by trade declines simply because it relies mostly on consumer spending, versus mostly on importing and exporting like other countries. However, China having declines in exports is a problem for everyone including the U.S. as China is still one of the biggest business partners of the U.S. to my understanding from my time as an undergrad, China and the U.S. have a love/hate relationship simply because, with us being one of their biggest customers, even if we’re at a deficit and owe them money, they still need us, so it would essentially hurt them to cut us off; not that that understanding is mentioned in this article, and again.
ReplyDeleteBut importing/exporting is based on supply and demand, which is essentially why China’s importing exporting problem affect everyone it does business with. As the article highlighted, if China is buying less, other countries are selling less, which means they have to raise pricing in their respective countries. I find this interesting, because when you look back at one of our past block about the Doha Round, you realize the value of their being more facilitation in global trading.