Terrible Trade Data Overlooked

 |  Includes: DIA, FXI, QQQ, SPY
by: Peter Cooper

Buried in a corner of the back page of my Gulf News Saturday morning was a news item about the latest Organization for Economic Cooperation and Development comments on global trade figures showing ‘a remarkably similar… synchronized trade collapse… across countries’.

Indeed G7 exports were down 22.8 per cent in the first quarter of 2009 against the same months in 2008, while imports fell by 16.8 per cent. The only good news was that the speed of contraction since July 2008 appeared to be slowing down.

No green shoots here

It is astonishing how little attention this data has received from economic commentators and politicians. Perhaps that is because it just does not fit in with the fashionable green shoots of recovery theory, or the notion that the worst of the recession is past.

Let us be under no illusions. This is a faster and deeper contraction of global trade than anything seen in the 1930s. It is far more universal than in the Great Depression. And there seems absolutely no reason to think an immediate bounce is in prospect.

What the bank bailouts and stimulus packages have done – aside from the important business of keeping the banks afloat – is to offset the very worse of the impact of falling trade. They have not, and logically can not, entirely offset such a huge contraction in global business.

In China – the world’s largest exporter – this is seem at its most dramatic. A potentially crippling loss of one quarter of exports has been offset by an explosion of lending in the domestic market to rapidly produce new demand for cars and fridges.

So far this Chinese gamble is working, although only at the price of piling up bad debts and setting up its own carbon copy of the US subprime lending crisis.

Recovery-free recovery?

But what comes next? Everybody seems to concentrate on the stock market rally rather than the terrible fundamentals of trade. For the stock market, then, the potential for disappointment from ridiculously high expectations is obvious.

However, if the stimulus and bank bailouts have been all that has sustained us, what happens as they run out? There will have to be more of them, but only at the cost of printing money with the risk that means for inflation and devaluation.

But in the meantime the stage is surely being set for a further deflation in asset values with commodities high on the list of overbought assets. Only when a true bottom is in can come a meaningful recovery, although without some new driving force it is hard to see more than a very flat period of lower economic activity.