The financial crisis that began in the United States in 2008, and spread rapidly to Europe and around the world through trade, financial, and confidence channels, triggered a synchronous and deep global recession. Toward themiddle of 2008, global economic activity began to significantly deteriorate. By the start of 2009,most of the major economies in the world had fallen into recession or were experiencing downward turns in economic activity.
World merchandise exports peaked in the second quarter of 2008, before falling for three consecutive quarters. By the end of the first quarter of 2009, global merchandise exports were 38.2 percent lower than before the fall. Since then, they have rallied—registering quarterly growth rates in the range of 8 to 10 percent—and closed out the year 18.8 percent below their previous peak.
The global economic crisis resulted in a 12.2 percent reduction in the volume of global trade in 2009—the largest such decline sinceWorldWar II. Trade in current U.S. dollar terms fell even further (down 23 percent) than trade in volume terms, thanks in large part to falling prices of oil and other primary commodities. In contrast, world economic output fell by 2.3 percent, in real terms.
A sharp contraction in global demand is thought to be the primary reason behind the decline, magnified by the product composition of the fall in demand, by the presence of global supply chains, and by the fact that the decline in trade was synchronized across countries and regions.
All major countries and regions registered declines in the volume of their merchandise exports in 2009. Likewise, imports into all major countries and regions were down, most notably to Russia and the other Commonwealth of Independent States countries.
Notwithstanding the reductions in trade, China displaced Germany as the world’s largest exporting nation in 2009. China also moved ahead of Germany to become the world’s second-largest importer, behind the United States last year.
After having expanded by 15 percent in 2008 and by 16 percent in 2007, the value of worldmerchandise exports fell 23 percent to US$12.15 trillion in 2009 (Table 2-1).
There are a variety of explanations for the dramatic decline. According to the WTO,1 declines in wealth during the recession caused households and firms to reduce their spending on all types of goods, notably consumer durables (e.g. automobiles) and investment goods such as industrialmachinery. Purchases of these items could be easily postponed in response to heightened economic uncertainty, and they may also have been more sensitive to credit conditions than other types of goods.While these products hold comparatively small shares in world output, they comprise a disproportionately large share of world trade. Thus, a decline in demand for these products had greater impacts on trade than on GDP. Moreover, the reduction in demand for these products fed through to markets that supply inputs for their production, particularly iron and steel.
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There is also the possibility that some of the decline is attributable to the “double counting” of traded intermediate products, associated with the rise of global value chains.2 This is reflected in the fact that exports have been growing faster than production since the 1980s. This ratio has increased steadily since 1985, and jumped by nearly one third between 2000 and 2008, before dropping in 2009 as world exports fell faster than world GDP.
A final factor that reinforced the 2009 trade slump was its synchronized nature. Exports and imports of all major countries fell at the same time, leaving no region untouched. It is likely that the fall in world trade would have been smaller if contraction in some regions had been balanced by expansion in others.
In contrast to 2008, when faster rates of growth for merchandise exports were recorded for the developing economies, exports fell by more for the developing economies than for the developed economies in 2009, with the exception of Asia. One possible explanation for this was the softening of most commodity prices in 2009, as commodities comprise a large portion of developing economies’ exports.
The retreat of oil prices from record highs inmid-2008 contributed to the 36 percent drop in exports from the Commonwealth of Independent States (CIS) region. Russia, the largest of the CIS economies, also experienced a 36 percent reduction in exports.
Exports from the Middle East, also an oil-dependant region, were next in terms of largest relative declines, as exports from the region were down by 33 percent from their 2008 levels. Africa followed, experiencing a 32 percent decline in exports last year, while those for Central and South America were off by 24 percent.
The decline in European exports matched the world average, falling by 23 percent, as did those for the EU alone. Exports from Germany retracted by 22 percent and those from France by 21 percent, helping to stem the greater losses experienced elsewhere in the EU,most notably the United Kingdom and Italy, where exports were down by 24 percent and 25 percent, respectively.
Exports from North America performed slightly better than did global exports, falling by 21 percent. There were considerable performance differences within the region, with exports from the United States falling the least (down 18 percent) and those from Canada falling themost (down 31 percent in U.S. dollar terms). Part of the Canadian decline is attributable to the 6.7 percent depreciation of the Canadian dollar given that the rates of change are based on U.S. dollar values, and another part is attributable to the correction in commodity prices, most especially energy prices.
Most of the Asian economies were less exposed to the factors underlying the financial crisis. They were, nonetheless, highly exposed to the collapse in world demand on the trade front, particularly via supply chains in manufactured goods. Overall in 2009, exports from Asia were 18 percent below their 2008 levels. China posted a 16 percent decline in exports, just slightly ahead of the Asian NIEs3 (down 17 percent). India (down 20 percent) and Japan (down 26 percent) recorded larger declines than the Asian average.
Total world merchandise imports fell by 24 percent in 2009. In North America, the decline averaged 25 percent, as the declines were greatest in the United States (down 26 percent), followed by Mexico (down 24 percent) and Canada (down 21 percent).
Imports into Europe also fell by 25 percent last year. Smaller declines in Germany and France (down 21 percent and 22 percent, respectively) were offset by larger declines in Italy (down 26 percent) and elsewhere.
Most of the developing regions experienced somewhat smaller declines in their merchandise imports than the world average. Imports into Africa fell the least, likely reflecting that region’s dependence on imports for many products. Still, imports into Africa were down 16 percent in 2009 over 2008.
For the Middle East, imports were down by 18 percent, while for Central and South America, they were 25 percent lower in 2009.
Imports into Asia also declined by 21 percent, as a smaller decline in China (down 11 percent) helped offset larger declines in Japan (down 28 percent) and in India and the NIEs (both down 24 percent).
The CIS region (down 33 percent) was the only other developing economies region, other than Central and South America, to experience a larger decline in merchandise imports than the world average. A 34 percent decline in imports into Russia helps to explain this performance.
As with trade values, all countries and regions registered declines in the volume of their merchandise exports in 2009. The largest of the developed economies—the United States (down 13.9 percent), the European Union (down 14.8 percent) and Japan (down 24.9 percent)—all registered declines larger than the world average (down 12.2 percent). In contrast, the smallest declines were recorded by the developing economies, most notably the oil exporting regions of the Middle East (down 4.9 percent), Africa (down 5.6 percent), South and Central America (down 5.7 percent) and the CIS region (down 9.5 percent). Asia also saw export volumes decline (down 11.1 percent), led by India (down 6.2 percent) and China (down 10.5 percent), but by slightly less than the world average. Overall, Japan registered the most dramatic decline in real exports last year, falling by 24.9 percent.
The situation was reversed on the import side, where the two largest declining regions were the CIS (down 20.2 percent) and South and Central America (down 16.5 percent). Among the remaining countries, declines in the United States (down 16.5 percent) and the European Union (down 14.5 percent) exceeded the world average, while Japan’s drop (down 12.8 percent) was nearly equal to the world rate (down 12.9 percent). TheMiddle East (down 10.6 percent), Asia (down 7.9 percent), and Africa (down 5.6 percent) all registered declines below the world average. Imports declined the most within developed Asia, where they fell by 12.8 percent in Japan and by 11.4 percent in the NIEs, while they were down 4.4 percent for India. China was the only country to post an increase in real imports in 2009, as imports edged up 2.8 percent last year.
Over and above falling volumes of trade, prices for energy and most commodity products (except gold) also retreated in 2009.With both price and volume declines, it is not surprising that there were significant impacts on nominal merchandise trade values as well as growth rates last year.
Oil prices, which had reached over US$145 a barrel4 in July 2008, began the year in themid-US$40 range (Figure 2-1). By February 12, the price had sunk to US$34.03, the low for the year. The price rallied, breaching the US$70 mark on June 9. Prices fluctuated in a range between US$60 and US$73 over the summer and autumn before rallying inmid-October and peaking for the year at US$81.03 on October 21. Prices slowly tumbled until mid-December when they began to rise again. They closed the year at US$79.39 on December 31. Overall, WTI crude prices were 37.8 percent lower in 2008 compared to 2009.
In Canada, average annual energy prices in U.S. dollar terms fell by 42.4 percent in 2009 according to Bank of Canada statistics, while those for industrial materials were 15.2 percent lower than a year earlier and those for food were down by 21.7 percent.
On the other hand, gold prices, which started 2009 at US$874.505 (and reached a low of US$810 on January 15), trended upwards throughout the year, reaching a peak of US$1212.50 in early December, before closing the year at US$1087.50 on December 30.
On the exchange rate front, the Canadian dollar fell against its American counterpart in 2009, depreciating 6.7 percent for the year. The dollar, which was worth an average US93.81¢ in 2008 was worth an average US87.57¢ in 2009, a loss in value of US6.24¢. Because of the depreciation, the value of a dollar’s worth of Canadian trade (either exports or imports) was worth less in 2009 than in 2008 when converted into U.S. dollars, thereby overstating the decline in Canadian trade performance.
The U.S. dollar also strengthened elsewhere last year, notably against the pound sterling (up 18.4 percent) and the euro (up 5.7 percent) as the United States became somewhat of a safe haven for international capital during this unsettled period. However, key Asian currencies appreciated against the U.S. dollar, including the Japanese yen and the Chinese yuan (or renminbi).
Notwithstanding a 16 percent decline in its exports, China managed to displace Germany as the world’s leadingmerchandise exporter, as Germany’s exports fell by somewhat more, down 22 percent (Table 2-2). China’s share in world merchandise exports was 9.9 percent, compared to 9.2 percent for Germany.
The United States and Japan held onto the third and fourth positions, with world shares of 8.7 percent and 4.8 percent, respectively.
EU nations accounted for all but one of the remaining top ten positions.With similar rates of decline, there was no change in the rankings of the fifth through eighth spots, as the Netherlands, France, Italy, and Belgium held onto these spots in the order in which they are listed.
Source: WTO and author’s calculations.
Korea, the twelfth-largest exporter in 2008, moved into the ninth position in 2009, as that country posted the lowest decline in exports (down 14 percent) among the leading merchandise exporters.
The United Kingdom slipped one ranking place between 2008 and 2009, to fill out the final place among the top ten exporters.
Canada, which had been in eleventh position in 2008, fell to twelfth in 2009. Canada managed to move past Russia, which had been in tenth place in 2008; however, it was surpassed by Hong Kong and, of course, Korea, to explain the downward shift.
In spite of some correction in its external imbalances, the United States remained far and away the world’s largestmerchandise importer. Germany and China held onto the next two positions, with China becoming the second-largest importer and Germany falling to third. As with exports, it was because the decline for China was less dramatic than that for Germany that China moved up one spot. France and Japan tied for fourth spot, as a 22 percent decline in French imports compared to a 28 percent decline in Japanese imports allowed France to move into a tie with Japan. The United Kingdom, the Netherlands, and Italy retained the sixth through eighth spots while a relatively small reduction in imports into Hong Kong (down 10 percent) allowed that economy to move into ninth place (up fromtwelfth in 2008) while Belgiumslipped to tenth spot. Canada retained its eleventh place ranking while Korea fell from tenth in 2008 to twelfth.
World services exports declined 13 percent (US$500 billion) to US$3.31 trillion (Table 2-3). This marked the first time since 1983 that trade in services declined year on year.
The decline in services was a little more than half that ofmerchandise trade in 2009. This is partly a reflection of the disproportionate impact that the global crisis had on durable goods, and of the greater effect of price declines on goods trade. It may also point toward the more limited role of services in supply chain transactions
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|Central & S. America||100||3.0||16||-8||111||3.6||21||-8|
|EU(27)||1 513||45.7||11||-14||1 329||42.7||11||-13|
Source: WTO and author’s calculations.
The CIS region posted the largest relative decline in services exports, as these exports fell by 18 percent over 2008. Europe also registered a decline greater than the world average, down 14 percent.Most of the major EU economies posted losses at or greater than 14 percent, with the exception of Germany, where services exports were down by only 11 percent. Asian exports of services fell in line with the world average, although the decline was greater for Japan, down 15 percent.
TheMiddle East (down 12 percent) and Africa (down 11 percent) saw their services exports shrink at a slower pace than the world average. The same was true for North America, where both Canada and the United States experienced declines in services exports by 12 percent and 9 percent, respectively. Services exports retracted the least in Central and South America, where they fell by only 8 percent in 2009.
The story was similar for services imports, with imports falling faster in the CIS and European regions, although several of themajor EU economies performed better than the world average, except the United Kingdom.Middle Eastern imports of services also declined faster than the world average.
Asian imports of services fell at a slower pace than the world average, as did African imports. Services imports into both regions fell by 11 percent. Within Asia, China’s imports were unchanged from the previous year.
As with exports, the decline in services imports was below the world average in North America, with imports into Canada and the United States falling by 11 percent and 9 percent, respectively. And finally, services imports declined the least in Central and South America, as they fell at the same rate as posted for services exports 8 percent.
Exports of transport services fell 21 percent, registering the largest drop among service categories, followed by travel (down 11 percent) and commercial services (down 10 percent). The drop in transport services was roughly the same as the drop in merchandise trade. This is unsurprising as this category is closely linked to trade in goods. Commercial services accounted for slightly more than half of all services (53 percent), while travel accounted for roughly one quarter of all services exports, and transportation services made up the remainder (Table 2-4).
(US $ billions)
Source: WTO and author’s calculations.
In 2009, the United States exported nearly twice the value of services as its nearest competitor, the United Kingdom, the former accounting for 14.2 percent of the world’s exports of services compared to 7.2 percent for the latter. Germany (6.5 percent) and France (4.2 percent) accounted for the next two spots (Table 2-5).
China (3.9 percent) slipped past Japan (3.8 percent) for fifth and sixth place, respectively. The final four spots among the ten leading exporters of services were all EU countries: Spain (3.7 percent), Italy (3.0 percent), Ireland (2.9 percent) and the Netherlands (2.8 percent).
Canada held a 1.7 percent world share, and was the world’s eighteenth-largest exporter of services in 2009.
On the import side, the United States again was the top services trader by value at 10.6 percent of the total, followed by Germany (8.2 percent) and the United Kingdom (5.1 percent). An 11 percent reduction in imports into Japan, coupled with no change in imports into China raised China’s ranking to fourth, while Japan slipped to fifth. France (4.0 percent), Italy (3.6 percent) and Ireland (3.3 percent) all managed to register services imports in excess of US$100 billion, despite the contractions in their services imports during 2009. The Netherlands and Spain (both at 2.8 percent) rounded out the top ten.
Canada registered a 2.5 percent world share, and was in the eleventh position among the world’s leading importers of services in 2009. A smaller decline in services imports into Canada (down 11 percent) than for Korea (down 19 percent) allowed Canada to surpass Korea in the rankings between 2008 and 2009.
(US $ billions)
(US $ billions)
Source: WTO and author’s calculations.
2. “The international fragmentation of production implies that the export of one manufactured good now involves multiple border crossings of intermediate goods with incremental value added at each production stage. Since trade flows are measured in gross terms while GDP is measured in value-added, the change in trade flows is a multiple of the change in demand for the final exported good.” OECD Economics Department Working Paper No. 729, quoting Yi (2009).
4. Prices quoted are for West Texas Intermediate (WTI) crude traded in the spot market at Cushing, Oklahoma, as quoted by the U.S. Energy Information Administration (USEIA) at http://tonto.eia.doe.gov/dnav/pet/pet_pri_spt_s1_d.htm
5. Price per troy ounce, London Afternoon (PM) Gold Price Fixings as quoted from www.usagold.com/reference/prices/2009.html