Selling to each other impossible as worldwide trade diminishes

When HSBC Holdings Plc’s economists from around the world recently pooled their forecasts, virtually all had a similar source of growth in mind for the region they monitored: exports.

The impossibility of every nation being able to sell more than it buys means some of the analysts must be wrong -- unless the rest of the solar system becomes a source of demand for the globe’s products, Stephen King, HSBC’s chief economist, told an Oct. 16 conference in London, flashing a slide of the planets.

“Export claims are just far too optimistic,” said King, a former U.K. Treasury official.

The bet on trade is flopping for companies and policy makers who had hoped it would power recoveries held back by weak domestic demand. This week alone, Caterpillar Inc. and Unilever complained of sliding overseas buying and data showed global trade volumes fell in August by the most since February.

Trade is falling short as emerging markets from Brazil to India slow and the dollar resumes a slide abetted by the Federal Reserve’s maintaining stimulus. The deterioration in cross- border commerce could provoke a response from policy makers eager to protect their expansions and even clashes between them if it endures, said Simon Evenett, professor of international trade at the University of St. Gallen in Switzerland.

“Trade would have picked up much more in a normal recovery,” Evenett said in a phone interview. “The outlook is more of the same as there is much more economic uncertainty than at the start of the year.”

Dropping Volume

A report yesterday highlighted the issue: The Hague-based CPB Netherlands Bureau for Economic Policy Analysis estimated global trade volume fell 0.8 percent in August, eroding a 1.8 percent jump of the previous month. It was the weakest performance since a 1.1 percent decline in February and left the three-month average lagging its historical pace.

Data from individual countries reflects the gloom. The U.S. trade gap was little changed in August at $38.8 billion as exports fell 0.1 percent and imports barely budged. Chinese exports unexpectedly fell in September and shipments from Taiwan and South Korea also declined. Even with the yen falling this year, the volume of Japanese exports fell last month.

The outlook may only be slightly better next year. The World Trade Organization last month cut its forecasts for trade growth in 2013 and 2014 to 2.5 percent and 4.5 percent respectively, both below the 20-year average of 5.4 percent. The International Monetary Fund reflected such projections two weeks ago when it cut its own forecasts for worldwide economic growth to 2.9 percent this year and 3.6 percent next year.

Emerging Weakening

The trade slowdown stems mostly from developing nations, which had powered the world out of its 2009 recession. The IMF pared its prediction for 2013 growth in emerging economies to 4.5 percent from 5 percent. Some countries, including China, are also trying to rebalance their economies toward greater domestic demand after running up outsized current account surpluses.

Caterpillar, the biggest maker of construction and mining equipment, on Oct. 23 cut its 2013 sales and profit forecast. The Peoria, Illinois-based company cited a slump in demand from commodity producers and uncertainties about global growth. Rolling global three-month retail machine sales fell for a 10th month, led by declines in the Asia-Pacific region.

“There are encouraging signs, but there is also a good deal of uncertainty worldwide as we look ahead to 2014,” Chairman and Chief Executive Officer Doug Oberhelman said in a statement.

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