More NewsCapgemini’s Index Reveals Slowdown in Worldwide Trade Growth in 1Q10

Capgemini's Index Reveals Slowdown in Worldwide Trade Growth in 1Q10

World trade has slowed by 3.5% over the last quarter, according to the third edition of the Global Trade Flow Index by Capgemini Consulting. The report tracks trade by quarter based on the latest available official data from national agencies of the top 23 countries in the global trade arena.

The index figures revealed growth of 5% in worldwide trade in 1Q10, slower than over the previous quarter (8.5%), as fear of a sovereign debt crisis affected European economies and the volcanic eruption in Iceland caused considerable trade disruption. The largest rise in trade volumes was in Brazil, Russia, India and China (BRIC), where export volumes rose by as much as 15% as compared to the previous quarter (4Q09) as governments’ liberalisation initiatives and industrial capacity improved.

Trade growth remained strongest in Asia and Latin America in 1Q10 (combined total trade growth of 12.8% compared to 4Q09), but slightly decreased in the euro area (-0.23% compared to 4Q09) due to high unemployment and substantial fiscal deficits. The trade in European economies in the first quarter of 2010 was negatively affected by the fall in the value of the euro and the rising uncertainty surrounding the Greek bailout. Trade volumes in the US increased by 4.6% in 1Q10 and trade deficit widened as the value of crude imports hit the highest level in the last 18 months, with barrel prices at an average of almost US$79/barrel.

Growth in the BRIC Economies

The Global Trade Flow Index figures provide further evidence of the incredible growth of the BRIC economies. All four of the BRIC countries have far outpaced original growth projections. In the first quarter of 2010 alone compared with 4Q09, Brazil (15%), Russia (9.1%), India (16%) and China (14.9%) reported total trade growth levels that far exceeded the worldwide average. These growth levels should be noted in the following context:

  • Brazil’s economic growth surged in 1Q10 on strong domestic demand, witnessing a growth rate of 8% (compared to 4Q09), while its export market continued to struggle to reach positive growth.
  • India’s economy grew 8.3% quarter-on-quarter, indicating strong economic growth, driven in particular by a huge growth in the export of goods and services.
  • Despite slowing domestic demand, Russia’s total trade growth came from a boom in certain key sector exports like metal and mining, with ferrous metal exports increasing by 26.7% and iron ore concentrate exports increasing by 47.5% over the previous quarter.
  • Chinese export of goods gained momentum in 1Q10 (+13% compared to 4Q09), while the country is still to make progress toward rebalancing a more consumer-oriented economy.

“The BRIC economies are the biggest driver of global trade flows, with each country having grown stronger than predicted BRIC growth projections. Actual figures for 2009 equate to the same growth levels as originally projected for as much as 14 years later in Brazil,” said Roy Lenders, vice president supply chain management at Capgemini Consulting.

The US, Germany, Australia and Korea in particular enjoy a very healthy trade position with the BRIC economies overall. Japan is also a major trading partner for Brazil and China, but lags behind somewhat on its trade with Russia and India. France, the Netherlands and UK also lag overall on their levels of trade with the BRIC countries.

Capgemini Consulting predicts that when the final figures for 2Q10 are collated, there will be a rebound in world trade. With the recent weakness in the euro, fuelled by the Greek debt crisis, European nations may notably struggle to accelerate their exports. In addition, with increasing imports and flow of money within the Chinese economy through government stimulus, China may begin to face inflationary risk that may impact its competitiveness through an increase in its export prices.

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