Weak World Trade and a Fiscal Easing in 2016
The Dutch group CPB has reported that total world trade volumes are flat in year on year terms and down 1.6% YTD, as well as Asian import volumes being down 8% YTD and export volumes by a massive 9% YTD. In addition, the Asian airfreight volumes are down by 2% YoY therefore it is clear that Asia has become the epicentre of the current weakness in world trade. To us, this latest Asian trade and financial slump seems simply to be one of the less pleasant results of the game of credit boom ping-pong (rolling credit booms and busts) that began in 1985. Unfortunately, this latest bust may well have significant deflationary consequences for the global economy
Over the medium term, we can assume that our political masters will recognise the problems inherent in Asia’s latest slump and governments will turn back to more public expenditure and also seek to take more control of the private sector’s capital stock. While this will likely produce better growth in the near term, it will do little to improve the underlying state of the global economy over the longer term unless the money is spent wisely.
Of course, rather than embarking on credit boom ‘ping pong’ with the EM over recent years, the Western world should instead have invested in raising productivity through better education, encouragement of R&D and provision of physical infrastructure some years ago but this opportunity was missed.