The World Trade Organisation's barometers of goods and services trade provides clues to future growth
The World Trade Organisation's barometers of goods and services trade provides clues to future growth

Index: goods and services trade loses momentum

11 October 2019

Effects of the current climate of uncertainty are being felt by both goods and services, according to new barometers

Global trade is being buffeted by world economic factors including, but not limited to, the US-China trade war, the growing dispute between the US and Iran, Britain’s departure from the EU, and the looming clash between Argentina and the International Monetary Fund (IMF), which some observers predict may cause the South American nation’s financial collapse. 

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In a climate where uncertainty rules, the World Trade Organisation (WTO) is attempting to provide a modicum of security with its barometers of goods and services trade, introduced this year in order to provide “clues” about trade growth in the immediate future. Not intended as short-term forecasts, the main contribution of the barometers, says the WTO, is to identify turning points and gauge momentum in world trade growth. Produced to complement existing trade statistics and forecasts from the WTO and other organisations, the barometers are calculated using component indices, before seasonal adjustment. On both the goods and services barometers shown below, readings of 100 indicate growth in line with medium-term trends; readings greater than 100 suggest above-trend growth, while those below 100 indicate lower than expected growth.

Goods trade loses momentum

The WTO’s Goods Trade Barometer is calculated using component indices of data from export orders, international air freight, container port throughput, automobile production and sales, electronic components and agricultural raw materials. Figures suggest further weakening of goods trade into the third quarter of 2019. 

The latest reading of 95.7 is a further decline, and signals stronger trade growth is not yet in sight. The figure continues to fall well below the baseline value of 100 for the index of the barometer. The loss of momentum in goods trade has already been confirmed in previous quarters, according to the WTO, whose barometer suggests that below-trend expansion in merchandise trade will persist in the coming months.

Sustained weakness in the barometer index was driven by below-trend values in all component indices. The international air freight (91.4) and electronic components (90.7) indices marked the strongest deviations from trend, well below previous readings. Export orders (97.5), automobile production and sales (93.5) and agricultural raw materials (97.1) all fared better but still remained below trend. However, they show some signs of having bottomed out. Only the index for container shipping (99.0) was close to the baseline. 

The WTO’s mid-year report from Roberto Azevêdo, director-general, underlined that trade flows hit by new restrictions continued to be at “historically high levels” between mid-October 2018 and mid-May 2019. Current tensions leading to higher trade barriers and greater uncertainty pose significant risks to trade growth, the WTO predicts. 

Coleman Nee, economic affairs officer, WTO, says: “Trade has been slowing for some time because of rising trade tensions and economic uncertainty, with monetary policy and investment slowing in both advanced and under-developed economies. Trade tensions can exacerbate any slowdowns and this is one more piece of evidence confirming a global slowdown. The direct impact and magnitude of trade tensions is not necessarily showing up so far, but countries’ investment is slowing down and until there is more clarity we won’t know how this will change.”

The tensions are creating uncertainty that is weighing on investment, says Nee, who points out that the US, China and EU are “loosening up” monetary policy. 

“This has real economic effects,” he says, “discouraging investment, because until businesses know the costs in input they can’t decide where to source parts and components. We don’t know yet the impact of the recent Saudi oil terrorist attacks and there could be more, which could lead to increased trade tensions.”

Services trade faces “headwinds” 

Global trade in commercial services faced increasing headwinds in the second quarter of 2019, according to the WTO’s Services Trade Barometer. The latest reading of 98.4 is below the baseline value of 100 and well below the most recent peak of 103.1, recorded in July 2018; suggesting a loss of momentum in world services trade. 

Already, world services trade growth had weakened further in the first quarter of 2019 says the WTO, which provides an approximate measure of the volume of world services trade by adjusting nominal services trade values to account for changes in exchange rates and inflation. Despite its recent loss of momentum, services trade has generally held up better than goods trade, which is more directly affected by rising trade tensions, reports the WTO. 

Most of the barometer’s component indices declined in June, indicating a broad loss of momentum across service sectors. The global services Purchasing Managers’ Index, the passenger air travel index from the International Air Transport Association, and the construction index were all below trend and slowing, according to the latest reading. The financial services index finished slightly below trend, down from the previous month. The Information, Computer and Telecom services index fell from above-trend in mid-2018 to on-trend. In contrast, the container shipping index was slightly above trend and rising in June, following a multi-month slowdown.

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