World Trade Organization Introduces Global Trade Indicator
July 08 2016 - 8:50AM
Dow Jones News
SHANGHAI—Trade wonks and policy makers got a new data point to
help assess the state of global trade, and the first reading wasn't
encouraging.
On Friday, the World Trade Organization launched a quarterly
indicator on the sidelines of a Group of 20 Trade Ministers'
meeting designed to forecast world trade volumes three to four
months in advance. Given repeated downgrading over recent quarters
of the global economic and trade outlook, the World Trade Outlook
Indicator started its existence pointing down.
The initial reading of 99.0 for the gauge for the third quarter
suggests a modest weakening of global trade volumes ahead, given
the 100 level separating expansion from contraction.
The 164-member WTO said the indicator is potentially useful for
government planners looking to craft economic policy, as well as
individuals, investors and industries involved in exports. These
potentially include global delivery services such as FedEx Corp.,
United Parcel Service Inc. and Deutsche Post AG's DHL Express unit,
as well as international shipping companies such as Maersk Line,
part of A.P. Moller-Maersk Group, and the China Ocean Shipping
Co.
"It will give policy makers quicker, more frequent insight into
what's happening," said WTO economist Robert Koopman, who added
that the methodology suggests the indicator would have done a good
job signaling the global financial crisis and could point to the
next financial crisis or a sharp economic downturn in China.
"Our data stops in May, so Brexit is not in there yet," Mr.
Koopman said, referring to Britain's decision to leave the European
Union. "But by July or August, we should be able to tell how Brexit
will affect trade flows going forward."
While other parts of the global economy have forward-looking
indicators, global trade has relatively few, Mr. Koopman said. The
WTO test drove various components, eventually settling on six it
combined to craft the indicator: global air cargo volume, container
port volume, auto production and sales, export orders, electronic
components and agricultural commodities. When backtested, the
indicator has proven 97% accurate, he said.
Willy Lin, managing director with textile maker Milo's Knitwear
Ltd. and chairman of the Hong Kong Shippers' Council of export
companies, said the new indicator is a good idea but probably not
detailed enough when negotiating freight rates with shipping
companies.
Most companies already know the general direction of global
trade and are more interested in individual routes, major factories
being built near particular ports and what markets are growing, he
said. "Everyone knows the global market is not so good. We're
looking for more detail," Mr. Lin said.
The WTO said the indicator isn't meant as a short-term
forecasting tool—its semiannual trade forecast fills that role—but
rather provides a way to identify turning points and gauge momentum
in global trade growth. The organization's current forecast is for
2.8% annual trade growth this year, the fifth consecutive year of
below-3% growth, WTO Director General Roberto Azevê do said.
Alan Oxley, chairman of the Australian APEC Study Centre at
Monash University, said the WTO should focus more on foreign direct
investment in its bid to craft forward-looking indicators given
that the traditional link between global trade and global growth
has weakened since the global financial crisis for reasons that
aren't clearly understood.
FDI is certainly important, but the trade group doesn't
necessarily think it is a good short-term indicator, Mr. Koopman
said. And the weaker link in recent years between global trade and
growth relates more to the WTO's trade forecast than this
indicator, he said. "It's very worthwhile tracking FDI, but it's
not really core to the WTO," Mr. Koopman said.
Write to Mark Magnier at mark.magnier@wsj.com
(END) Dow Jones Newswires
July 08, 2016 08:35 ET (12:35 GMT)
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