In 2024, 24 new countries will join the Guided Trade Initiative of the African Continental Free-Trade Area (AfCFTA). With the aim to boost intra-regional trade, the AfCFTA could increase Africa’s revenue and improve its resilience to external shocks. However, beyond tariff barriers, some structural challenges must first be addressed to see the full potential of the largest free-trade area in the world.
According to our estimate, the trade deficit (on trade in goods) stood at almost EUR 101 billion in 2023, down from 165 billion in 2022, but still up from 86 billion in 2021. This improvement is primarily due to the drop in oil prices and the return to normal of electricity exports and intermediate-good imports. The good news is that the trade balance is also improving in volume terms, albeit to a more limited extent and due to effects that are likely to be one-offs.
The Red Sea conflict has already had a substantial impact on global shipping. While maritime freight prices are, at this stage, still well below the levels seen in 2021, when the global economy was recovering post-lockdown, they have spiked in January 2024. The Freightos index (chart 5) shows that transportation costs have tripled on average compared to the end of last year. Due to their geographical locations, China and Europe have been the regions most directly affected by these disruptions, and are already facing threefold (China-Europe route) to fivefold (Europe-China route) increases in transportation costs. However, the effects are gradually being felt on all global shipping routes
The evolution of international trade is sending rather reassuring signals about the state of global demand. New machinery and equipment orders from South Korea, as well as export orders from Taiwan – generally seen as two reliable indicators of global manufacturing activity – rebounded sharply in October.
Global exports have levelled off for almost two years, after a strong increase in 2021. Export growth has stagnated in both emerging and advanced economies. However, the CPB data show a slight rebound in exports in volume terms in August, at 1.1% m/m, although the annual rate is still negative at -2.3%. The monthly increase was driven by China (+5.3% m/m) and the United States (+1.3% m/m),
German exports of goods increased by 2.6% y/y in the first 7 months of 2023 compared with the same period in 2022, but one usual destination is missing: China (-8%).
World trade in goods (exports and imports combined) continued to fall during the first months of the summer, but the trend must be put into perspective: apart from a few sectors, and mainly the automotive sector, the pent-up demand following the pandemic seems to have almost completely vanished; the trend in trade activity is therefore returning to levels more consistent with the ones prevailing before the arrival of Covid-19.
After several months of improvement, global supply-chain disruptions appear to have bottomed out, and some signs of deterioration are emerging again. The synthetic indicator of the Federal Reserve of New York (FRNY; chart 3), which measures these tensions, rose slightly in June, for the first time in 2023, as did the PMI delivery times index, which is part of the FRNY aggregate indicator.
Global export volumes fell sharply in April, a fairly logical correction after the strong growth in the previous month, linked in particular to the catch-up effects subsequent to the end of the lockdown in China.
The reopening of the Chinese economy at the end of last year has finally had its effects with a few months’ delay. Exports from China jumped 19.8% m/m in March, according to preliminary figures released by the CPB.
On 5 April, the World Trade Organisation (WTO) released its revised outlook for 2023 and its first forecasts for 2024. It is now projecting world exports in volume to grow by 1.7% this year, up from its October 2022 forecast of 1%. Although this is still a mild increase, the WTO is expecting a rebound in 2024 to 3.2%.
The scenario of a slowdown in the emerging economies in 2023 is based on two hypotheses: 1) a slowdown in global trade and 2) the recessionary impact of inflation and monetary tightening. The first hypothesis is now a certainty: exports have clearly contracted in recent months, in both the advanced countries and emerging economies. The causes are partially circumstantial, and hopefully the cooling of world trade will only be cyclical. It is possible, however, that the trade and technological decoupling of the US and China are also a contributing factor.
Trade integration with China (including Hong Kong and Macau) has changed tremendously over the past 20 years. In 2022, bilateral trade amounted to some USD 150 bn – a 37-fold increase relative to trade in 2001. Since 2009, China has been Brazil’s main trading partner absorbing today close to 27% of its exports (vs 11% for the US).
International trade data show quite clearly that the slowing of activity has been accentuated over recent months. Global export volumes, have continued to fall, according to the latest figures (December 2022). Health restrictions in China, which were only relaxed in mid-December, weighed on this dynamic. Nevertheless, global exports saw a 2.6% increase over the whole of 2022, relative to 2021.
In this new AudioBrief, Guillaume Derrien, economist within the OECD team, discusses the close relationship between global growth and the evolution of international trade.
Global PMI indices improved slightly in January but remain at a very low level and cannot be taken as a sign of global activity regaining momentum at the start of 2023.
The second half of 2022 was marked by a significant and generalised fall in global transportation costs, accompanied by a freeing up of supply chains. Global maritime freight fell back to levels almost five times lower than at the peak in autumn 2021. Only transportation costs for liquefied natural gas (LNG) increased significantly, due to Russian gas shortages, although prices have also fallen back since December.
Since 2016 China has become Germany’s main trading partner. German imports from China account for almost 12% of Germany’s total trade, and exports account for 8%. Overall, trade with China now accounts for almost 20% of total German trade.While Germany's trade deficit with China has always been relatively modest in the past, it has widened substantially since the start of 2021.Germany, which has a particularly high level of industrial production, has a significant degree of dependence on China for imports of strategic inputs, particularly in relation to its supply of rare earths. The key German industries are also dependent on Chinese domestic demand, because on average around 20% of their sales are made there, and this proportion is continuing to increase
The United Kingdom’s exit from the European single market and the customs union on 31 January 2020 caused a significant economic shock which has had an adverse impact on growth and inflation in the UK, particularly on foreign trade. Since 1st January 2021 and the coming into effect of the post-Brexit Trade and Cooperation Agreement (TCA), bilateral trade in goods between the United Kingdom and the European Union has fallen sharply. The United Kingdom has made changes which mean that some of its imported goods now come from countries outside the European Union.
Disruption in global trade has continued to abate. Despite this, there could still be major trade friction this winter, in addition to the direct repercussions of the war in Ukraine. China is facing a record rise in Covid-19 infections, and its Zero-Covid policy has shut down several plants in Henan province, which is home to the production lines for major global technology groups.
UK, Greece, South Africa: the strikes in the ports industry have multiplied in recent days, leading to disruptions to activity, in particular in South Africa. However, global maritime traffic continued to decongest and freight, as measured by the Freightos index, fell to its lowest level since the end of December 2020 (Figure 5). This represents a fall of 70% from the peak in September 2021 and a two-thirds drop in costs since the beginning of 2022.
On the whole, global trade tensions are continuing to subside, but new areas of friction are emerging as a result of the war in Ukraine. The New York Federal Reserve’s supply-chain pressures index has fallen significantly since the beginning of the year to reach its lowest level in 18 months in August. Another visible indicator of this reduction in bottlenecks is shortening delivery times: the global manufacturing PMI (purchasing managers' index) rose to 44.8 in August from 35.8 four months previously. A rising figure indicates a reduction in delivery times. However, this remains below its historical pre-pandemic average.
Although supply timescales are still historically long, the PMI index which assesses them has gradually improved since last autumn. According to the PMI sector survey, this reduction in delivery times can also be seen in most industries, particularly in the automotive, electronic equipment and agri-food sectors. As a result of these reductions, the backlogs of work indicator recorded its biggest fall in over two years. The aggregate value chain pressures index, which is published by the Federal Reserve of New York, confirms these positive developments. It has fallen to its lowest level since March 2021. These gradual but continuous improvements should help to ease some of the inflationary pressures currently weighing on the manufactured goods sector in particular.
Although some signs of improvement are visible on certain trade routes—notably between China and the West Coast of the US—the overall situation is still far from a return to normal. The lockdown in Shanghai will continue to have significant repercussions for the operation of ports in China and elsewhere in Asia throughout the second half of 2022.
Global PMI numbers point to a significant slowdown in global economic activity. The new export orders sub-index dropped to 48.1 in March, below the threshold for expansion, and was unchanged in April. More specifically, new export orders for Taiwan recorded a heavy fall (down 17.2% m/m), the biggest drop for fourteen months. Although a pullback was expected, following a strong rise in March (21.6%), the scale of the decline was surprising.
