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Business News/ Market / Mark-to-market/  Is slower growth in trade the new normal?
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Is slower growth in trade the new normal?

In the recent past, gap between the volume of trade and services has not only narrowed, in fact growth in trade and services volume has been lower than the GDP growth in 2015 and is predicted to be lower in 2016 as well.

Photo: Priyanka Parashar/MintPremium
Photo: Priyanka Parashar/Mint

Even for most of the 1980s, the growth of global trade was much higher than the rate of growth of global output. This is seen in the accompanying chart, which shows the growth in world gross domestic product (GDP) at constant prices and the growth in traded volumes of goods and services.

The chart shows that, except for a few years since 1980, growth in the volume of trade and services has been higher than global GDP growth. But in the recent past, the gap between the two has not only narrowed, in fact growth in trade and services volume has been lower than the GDP growth in 2015 and is predicted to be lower in 2016 as well.

Some analysts have said the spurt in global trade since the 1980s up to the global financial crisis was the result of the gradual integration of China, India and the erstwhile Communist bloc into the global economy, which resulted in an explosion of trade. Simultaneously, lower transport and communication costs led to an expansion of global value chains, with companies spreading various parts of their production and marketing activities geographically. This process, say the pessimists, is nearing its end, with increasing use of robotics and 3D printing techniques aiding and abetting it. They talk of a “new normal" of low-trade growth.

True, the very high rates of growth of global trade notched up during the 1990s and the noughties may be a thing of the past. But we must also acknowledge that part of the trade slowdown is because of the very low rates of growth in many parts of the world and the shift in China to a more consumption-oriented economy. The problem will deepen if countries try to promote their own growth by erecting barriers to imports.

Couldn’t countries like India “seize the day, seize the hour" and occupy the space being vacated by China? But for that to happen, we need to become a significant part of international value chains. Unfortunately, at present we seem to be at a risk of not being part of any of the regional groupings that threaten to stitch up world trade.

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Published: 19 Apr 2016, 12:30 AM IST
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