World imports grew by just 1.7% in 2015

World imports grew by just 1.7% in 2015

Emerging Asia was at the epicentre of the global trade slowdown last year, a new report has found, with lower commodity prices and China's transition to a new growth path two reinforcing factors.

After dramatically declining in the first half of 2015, global trade recovered but at a slower pace over the rest of the year, according to a new World Bank Group paper, Global Trade Watch: Trade Development in 2015. As a result, world imports grew by only 1.7% in 2015 compared to 3% in 2014. 

The slowdown, World Bank economists Cristina Constantinescu, Aaditya Mattoo and Michele Ruta believe, reflected persistently weak demand and structural changes in world trade.

But the authors also found that while weak import demand was mostly concentrated in advanced economies in previous years, trade developments in 2015 can be traced to emerging economies. Emerging Asia, which makes up more than a quarter of world trade, was the epicentre of the global trade slowdown and the initial rebound, they suggested. 

Other regions also played a role. In particular, trade developments in Latin America, Europe and Central Asia mostly reflected lower imports of recession hit commodity exporters such as Brazil and Russia.

In addition, the paper says lower commodity prices and China's transition to a new growth path were mutually reinforcing factors that created weak import demand in emerging economies. Lower commodity prices reduced commodity producers' incomes, leading to those countries importing less from all other regions, including China. At the same time, China's gradual shift from investment to consumption and the decline in its industrial production reduced China's imports from other regions, including commodity producers.

If China's imports had not fallen in 2015, world merchandise import volume growth would have been 2.1% instead of the actual 1.7%, the report noted.

China's transition is affecting the pattern of production and trade in East Asia and beyond, and the impact can also be seen in changes in manufacturing and services trade. Manufacturers, particularly in East Asia, suffered significant declines in export quantities but are now recovering. In the longer term, however, China's rebalancing from investment to consumption is likely to create opportunities, the authors believe.

"We could see gains in global trade going forward as a result of China's transition. Rebalancing from investment to consumption is likely to create opportunities for exporters of final goods and may eventually boost upstream intermediate and capital goods sectors that are now adversely affected. In addition, China's increasing demand for services could spur growth in the global services sector."

China's move from investment to consumption is already shifting the country's demand from goods to services. Part of this demand is being served by cross-border imports and consumption abroad, in which growth is already visible. China's share of services in imports has grown – from around 15% at the beginning of 2011 to close to 22% in the first half of 2015.