The next day, London-and-Rotterdam-based Unilever, the world’s second-biggest consumer-products maker, reported the weakest quarterly sales growth in four years. Demand fell in emerging markets, where it generates more than half of its revenue, and failed to pick up in North America or Europe. Revenue growth in developing economies alone slowed to 5.9 percent compared with 12 percent in the same period last year.
All the news isn’t bad. A new leading indicator published this week by economists at UniCredit SpA and based on inputs including activity at Chinese sea ports and in air cargo signals a “significant recovery” in global trade in coming few months.
Even in paring its forecasts, the Geneva-based WTO last month noted “conditions for improved trade are gradually falling into place.” It pointed to an improvement in purchasing managers’ indexes, an easing of the European debt turmoil and recent stabilization in China’s economy.
Policy makers may still be forced to react to protect their economies should exports cease to support expansion. If the dollar continues to decline as the Federal Reserve maintains its quantitative easing program, the Bank of Japan and European Central Bank will be more likely to provide greater stimulus, says Joachim Fels, co-chief global economist at Morgan Stanley in London.
The Bank of Canada already this week noted the lack of an anticipated pick-up in exports as it dropped language about the need for future interest rate increases.
Deutsche Lufthansa AG and LVMH Moet Hennessy Louis Vuitton SA are among the European companies bemoaning the euro’s unexpectedly rally this year. German airline Lufthansa this week cited the euro when its profit estimate fell short of analysts’ forecasts, while Parisian luxury goods-maker LVMH said the currency’s gain lopped 6 percent off third-quarter revenue.
A declining dollar may also antagonize trade partners, rekindling the so-called currency wars of recent years and posing another threat to the world economy, said Neil Mellor, a foreign-exchange strategist at Bank of New York Mellon in London. The dollar has declined 5 percent on a trade-weighted basis since mid-July.
The Bank of Korea is closely watching the rise in the won and will act to curb excessive speculative behavior, Ryoo Sang Dai, director general at the Bank of Korea’s international department, said yesterday. New Zealand central bank Governor Graeme Wheeler today called his dollar “very strong,” although he saw no opportunity to intervene. Reserve Bank of Australia Deputy Governor Philip Lowe said yesterday that a “further depreciation” in Australia’s exchange rate would be helpful.
“We suspect that this week we have witnessed the beginning of what may prove to be a sustained period of currency commentary by officialdom,” said Mellor.
Protectionism also is on the rise despite pledges to avoid it by the Group of 20 leading industrial and developing economies, according to Evenett. He estimates 337 measures have been imposed worldwide so far this year after 503 in 2012.
There are nevertheless hopes of new free-trade pacts. Talks are ongoing to create the Trans-Pacific Partnership, an 11- nation free-trade zone linking an area with about $26 trillion in annual economic output. The U.S. and European Union are also discussing a deal; Canada and the EU signed an accord last week.
“You could hope to get a boost to the global economy if you were able to remove a lot of existing barriers or if there was a breakthrough in trade negotiations,” said Andrew Kenningham, an economist at Capital Economics in London. That could all help but it doesn’t seem likely soon.”