Connectivity index points to continuing global trade growth

That ‘Globalisation’ is ending appears to be something of a consensus if the mass media is to be believed. The decision by the UK to leave the European Union and the election of Donald Trump are assumed to indicate that there will be a curtailment to trade between nations and regions.

Leaving aside the rather important fact that global trade has been growing more slowly than world GDP for several years, is it really certain that trade between nations will reduce in the near future?

A new piece of work from Deutsche Post DHL (DPDHL) suggests that the world continues to be more inter-connected. Indeed, it suggests that 2015 represented a new high in what it describes as “Connectedness”.  For the past several years the company has created a ‘Global Connectedness Index’ mapping a variety of different means of human movement and communication, and aggregating this into a compound metric of ‘Connectedness’. The work itself is complex and often impenetrable, however it does bring out the fact that both information, capital and people have increased in the past eight years. What it describes as the ‘Information Pillar’ of connectedness, which is a measure of the volume of internet traffic including activities such as Skype calls, telephone calls and printed publications, are increasing. For example, capital flows, have rebounded since 2015 with Foreign Direct Investment hitting a post-crash high of 9.9%, compared to the 6.7% in 2014. That said, it is still some way from the 17% seen in 2000 and much of the flow was financially driven rather than through investment in physical assets. 

The alarming number for the logistics sector is the fall in the trade of goods. The report states that “merchandise trade in US dollar terms fell 13% between 2014 and 2015 […] merchandise exports as a percent of world GDP fell from 24.4% to 22.5% over the same period, however, [it] does look better in volume rather than value terms (with the discrepancy between the two reflecting exchange rate shifts and commodity prices). Merchandise trade volume rose a modest 2.7% in 2015, roughly in line with global output. However, that remains a far cry from the years when trade was regularly expanding at twice the pace of world GDP growth”.

This presents us with contradictory signals. Whilst communication, tourism and capital flows are continuing to grow, trade in goods has slowed. However, grouping these indicators together as DPDHL has, highlights that the recession in global merchandise trade is divergent from the direction of much of the rest of the world’s economy. In turn this suggests it might be a temporary phenomenon. Rather, the continued growth of non-physical trade points to fundamental economic reasons for the growth in world trade which will not go away simply as a result of changes in a few political policies.

Source: Transport Intelligence, November 17, 2016

Author: Thomas Cullen