In this Audiobrief, Guillaume Derrien discusses recent evolution of the European Union's trade balance. The latter moved back to a surplus in 2023. Despite China’s ramping up to higher value-added sectors, the EU trade surplus in traditionally buoyant industries (pharmaceuticals, automotive) remains at historically-high levels.
Since China's accession to the World Trade Organisation (WTO) in December 2001, the European Union's bilateral deficit with the country has widened from EUR 39 billion to EUR 292 billion in 2023 (Eurostat data). This is by far the largest deterioration recorded by the Old Continent with a trading partner, even though, as a whole, the EU's trade balance with the rest of the world returned to surplus in 2023.
L’Organisation mondiale du commerce (OMC) a publié en avril son dernier jeu de prévisions dont le message est plutôt positif1. Après un repli de 1,2% en 2023, le volume des échanges mondiaux en biens rebondirait de 2,6% en 2024, une progression peu ou prou en ligne avec la croissance de l’économie mondiale, attendue par l’OMC à 2,7%. Parmi les principaux soutiens au commerce mondial, l’organisation de Genève met en avant la baisse anticipée de l’inflation en 2024 et 2025. Celle-ci permettrait de soutenir le pouvoir d’achat et, par conséquent, la consommation de biens manufacturés.
After two years of deficit, the EU trade balance returned to positive territory in 2023, supported in particular by falling energy prices. Trade surplus in traditionally buoyant sectors (pharmaceuticals, automotive) remains at historically high levels. China’s ramp-up to higher value-added sectors has, over the years, led to a deterioration in the EU’s trade balance with the country. Among other things, imports of motor vehicles from China tripled between 2019 and 2023.
The publication of INSEE’s business climate survey on Thursday 25 April confirms the prospect of an improvement in demand, which has remained depressed in recent months. Ahead of the publication of important data from 30 April, we anticipate that growth, having remained weak in Q1, should accelerate in Q2, benefiting from the disinflation observed. However, the improvement may not be sufficient to rule out the risk of business insolvencies remaining high.
Tensions on global maritime freight have eased in recent weeks but remain significant and the outlook uncertain due to the disruptions in the Red Sea. The global supply-chain tension index – from the Federal Reserve Bank of New York – rose above its long-term average in February for the first time since January 2023. But the Freightos and Baltic indices both fell nearly 15% in the first three weeks of March.
In terms of the trade balance, 2023 largely unwound the problems of 2022, which, with itsburdens and shocks, constituted an annus horribilis for French foreign trade.
Global maritime freight stabilised in February after the previous month’s sharp rise following the escalation of tensions in the Red Sea. The Freightos index is currently stable, with a decline even observed on routes between China and Europe which had been most directly affected by the conflict in the Middle East and by the rise in transport costs. The New York Federal Reserve’s global supply chain pressure index was unchanged in January but is expected to rise again in February, reflecting longer delivery times in the PMIs.
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.
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
