Global Trade Monitor – December 2022

This analytics article utilizes trade data published by S&P Global Market Intelligence-Global Trade Analytics Suite (GTAS)

Key Observations

• Data from S&P Global Market Intelligence Global Trade Analytics Suite (GTAS) show that year-on-year growth exports value is slowing down in most of the top 10 economies, except for Brazil.
• In mainland China, the most recent data published by China Customs show that after a significant slowdown in exports in August and September, October has already brought negative growth in Chinese exports.
• COVID-19 new cases, as well as potential social unrest may result in the weakening of the export potential of the Chinese economy, similar to the slowdown in the first half of 2022.
• S&P Global Market Intelligence projects global real GDP growth to slow from 5.9% in 2021 to 2.9% in 2022 and 1.5% in 2023.
• The most recent inflation data from November (published by the S&P Global Market Intelligence) shows another upward revision of inflation in the next few quarters — this time just a slight one.
• As winter in the northern hemisphere approaches, the dynamics of military actions in Russia -Ukraine conflict are expected to slow down in the next few months but peace negotiations are rather unlikely in the short term.
• Russia-Ukraine deal concerning seaborne exports, brokered by the United Nations, was renewed for another four months (120 days).

Changes in trade of the top 10 economies

Data from S&P Global Market Intelligence Global Trade Analytics Suite (GTAS) show that year-on-year growth exports value is slowing down in most of the top 10 economies, except for Brazil, which marked 17.6% year-on-year (y/y) growth (up from 13.1% increase in August) and the United States, reaching over 20% y/y growth for the sixth month in a row. On the other hand, the largest year-on-year drop in September was noted by EU (external trade at -6.5% y/y) and Japan, marking exactly the same negative year-on-year growth as in August (-0.9%).

When it comes to mainland China, the most recent data published by China Customs show that after a significant slowdown in exports in August (7.0% y/y growth) and September (5.6% y/y), October has already brought negative growth in Chinese exports (-0.6%). The situation in mainland China does not appear to improve anytime soon, with overseas demand falling and new COVID-19 cases and lockdowns across the country, including the city of Zhengzhou, where the world's largest iPhone manufacturing plant is located.

Looking at the most recent results in the imports value, the highest growth in September 2022 was noted by Brazil, with imports increasing by 24.9 % y/y. India, marking over 40% growth in July and August, has slowed down to 13.9% y/y in September. On the other hand, mainland China registered negative growth in imports for the last three months (-0.2% y/y, -0.4% y/y, and -1.1% y/y in August, September, and October, respectively) and United Kingdom's imports fell from 22.2% growth in August to only 4.2% in September.

Three economies had already published data for October 2022 — Brazil, mainland China, and South Korea, with the highest growth for exports reported by Brazil (20.8 % y/y) and the other two marking negative growth. In terms of imports, Brazil also marked the highest increase out of these three countries for October, but the country's imports have slowed down from 36.5% y/y noted in August and 25% y/y in September 2022 to 13.8% y/y in October. Brazil is followed by South Korea, with 9.9% y/y growth in October, also a significant slowdown from previous months.

The October results of adjusted Purchasing Managers' Index-New Export Orders (PMI NExO) for global manufacturing indicate eighth consecutive drop below the benchmark of 50.0 points and equaled 46.2. October's readout was slightly higher than the previous month's readout (+0.3 points), which, as we noted in November GTM publication, was the lowest since the first wave of COVID-19 pandemic in February-July 2020, which, to a large extent, reflects the spillover of the global economy's slowdown into the global trade.

Once again, as in August and September, the only country among the top 10 trading economies that exceeded the benchmark of 50.0 points was India (58.5), making another substantial month-on-month (m/m) increase of +3.3 points, the largest in the analyzed group. This translates into six consecutive months above the benchmark, prolonging the outstanding trade performance of India despite global slowdown.

Prospects for the Forthcoming Months

The world economy is amid a cooling off period. Since early 2022, global real GDP has been growing at a below-potential pace, a situation that is likely to continue throughout 2023. In many parts of the world, inflation remains in the danger zone following supply shocks emanating from the COVID-19 pandemic, Russia's invasion of Ukraine, and energy market interventions.

S&P Global Market Intelligence projects global real GDP growth to slow from 5.9% in 2021 to 2.9% in 2022 and 1.5% in 2023. Persistent inflation and expectations of further monetary tightening have pushed up interest rates on government bonds, corporate debt, mortgage loans, and consumer credit. The result is a broad slowdown in household and business spending. Recessions appear likely in Europe and North America — economies that produce half of the global output. Contractions in these regions will dampen growth in other parts of the world through trade and capital flows.

The most recent inflation data from November (published by the S&P Global Market Intelligence) shows another upward revision of inflation in the next few quarters — this time just a slight one. According to the data, inflation already reached its peak in the third quarter of 2022 at 8.13%, compared with 7.62% in the second quarter and 6.03 in the first quarter of 2022. The decay of inflationary pressure is expected to start in the second quarter of 2023 (5.32%) and return to the long-term trend further in 2024. At the same time, the inflation in the third quarter of 2022 in emerging markets exceeded the world average and advanced economies — 8.28% versus 8.13% and 7.81%, respectively.

As we constantly highlighted over the last months, the impact of the war in Ukraine on world trade comes primarily through commodity prices and it is expected to decrease global trade in 2022 by approximately 1 percentage point (pp). From the economic/trade perspective, the situation is generally stable despite the dynamic changes in the conflict itself in the last months.

As winter in the northern hemisphere approaches, the dynamics of military actions are expected to slow down in the next few months. As peace negotiations are rather unlikely in the short term, the economic impact of war on global trade is also not expected to change significantly during this time. The most important war-related events or factors that could potentially impact trade directly or indirectly are further changes to the grain deal or trade disruptions related to Ukrainian infrastructure, as well as trade policy changes, for example, vis-à-vis Russia. The latest update is that on November 17, the Russia-Ukraine deal brokered by the United Nations was renewed for another four months (120 days). Since the relaunching of seaborne exports from Ukraine in August 2022, Ukraine exported more than 10 MMt of grains, primarily corn and wheat. The deal allowed for the stabilization of food prices, lowered inflationary pressure in the food sector, as well as lowered the threat of food crisis, especially in the Middle East and North Africa.

When it comes to mainland China, the number of COVID-19 new cases increase so the condition of supply chains, especially in Eastern Asia, should be constantly monitored. The situation in mainland China this year is additionally tense, as in some cities, several protests related to the severity of COVID-19 restrictions were observed.

At the same time, both COVID-19 new cases, as well as potential social unrest may result in the weakening of the export potential of the Chinese economy, similar to the slowdown in the first half of 2022. The latest events in China have already impacted several markets, such as the oil market with prices dropping rapidly on Monday November 28, after the weekend of protests. Investors may expect the Chinese economy to cool down, lowering the demand for oil in the next few months, which can also indirectly impact global trade via transportation costs.

It may be expected that the reopening of the economy should happen in the first or second half of 2023.

Expectations for international trade in the next months

The slowdown of the global economy is apparent and reflected in the most recent monthly data for the top 10 economies. Exports of nearly all economies among the top 10 group are slowing down in September (except for Brazil and the United States), with more negative values than in previous months. Imports show some improvement but are still deteriorating in all analyzed economies. A relatively strong decline was also observed for India — so far the only country resilient to the global slowdown.

Both exports and imports are expected to further deteriorate in the coming months, which is reflected in the most recent PMI NExO readouts.

From a geopolitical and macroeconomic perspective, the global climate seems to be slightly changing owing to the fall and winter seasons in the Northern Hemisphere. New cases of COVID-19 may increase in the next few weeks, which, together with protests in mainland China, could result in supply chain disruptions and a decrease in trade with mainland China. On the other hand, the situation in Ukraine appears to have stabilized and is not expected to change significantly over the next few months.

Taking into account strong trade dynamics growth in the first half of 2022, the annual growth of global trade in 2022 may not reflect the severity of the global trade slowdown that started in the second half of 2022. On the other hand, in 2023, global trade contraction is expected. GTAS Forecasting expects trade recovery to start in 2024, returning to the long-term stable growth path.

Leading Economies of the World and Methodological Issues

The top 10 economies by GDP in 2021 include the U.S., EU27, mainland China, Japan, the UK, India, Brazil, South Korea, Canada, and Russia.

The top 10 group member states are responsible for approximately four-fifths of the world GDP and three-quarters of global exports, with most trade carried out within the group.

In the monthly Global Trade Monitoring commentary, we present year-on-year changes in the value of exports and imports for available monthly trade data from S&P Global Market Intelligence - Global Trade Atlas (GTA) in percentage.

Data edge differs from state to state depending on a given reporter and its reporting calendar.

For the EU Member States, we consider only EU external trade with non-EU states.

Please note that historical data in the GTA database are being adjusted monthly due to revisions introduced by the reporting states, potentially causing adjustments to the growth rates reported in the commentary provided by the Global Trade Monitoring from prior months (the report reflects the most recent data available).

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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.