World Economy

Global trade has been booming — but that may be about to fall apart

Key Points
  • Global trade has recovered since the end of last year, but it wasn't clear whether the growth can continue
  • Economists were watching China's economic growth closely for cues to the outlook

A burst of global trade starting from the end of last year has been driving Asia's economic growth, but it isn't clear whether the region can count on it to continue.

The recent step up in trade was sizable: South Korea, for one, reported that July exports jumped around 20 percent from the same month last year. The global trade pickup since the fourth quarter of 2016 has been particularly notable because it followed about five years of malaise.

Still, some analysts were pessimistic about what the next year holds.

"Things are starting to get messy," Rob Carnell, chief economist for Asia at ING, said in a note this week, pointing to factors including tensions over North Korea's missile program.

Carnell explained that the last few months of trade increases relied to a large extent on earlier weakness. "Now the easy growth is over, the export path ahead looks harder going," he said.

The ING economist also noted that some countries have benefited from their currencies suddenly becoming stronger in the face of a weakening dollar, but that may not continue for long.

Others also pointed to headwinds ahead.

Freya Beamish, chief Asia economist at Pantheon Macroeconomics, told CNBC on Tuesday that she didn't expect the trade growth to continue in Asia. Instead, she said, a slowdown would likely be apparent in fourth-quarter data.

"Demand in the U.S. and Europe is strong. In China, it's slowing rapidly," she said, adding she expected those developed markets to cool toward the end of next year. "That story has rolled over pretty quickly."

Containers at Busan Port in Busan, South Korea
Chung Sung-Jun | Getty Images

Some economists said they were expecting a moderation ahead, rather than a major move up or down.

Louis Kuijs, head of Asia economics at Oxford Economics, said he expected global trade growth peaked in the first quarter and would moderate for the rest of the year: "It will still be better than 2015 and most of last year," he said.

"The problem is that China kick started this global trade recovery," he added. "China's imports were very strong, but China's imports are now cooling."

Kuijs noted he didn't expect European and U.S. economic growth, which wasn't really accelerating, to offset a slowing China.

Others were much more optimistic.

It's not "a one-pony show" centered on China, said Klaus Baader, chief Asia-Pacific economist at Societe Generale.

Instead, while he said he expected trade growth will moderate, he remained optimistic, pointing to a revival in the technology cycle.

"It's based on a few areas of innovation or increasing penetration that are unlikely to disappear: the iPhone 7 and also the move to wireless electronics. It requires a lot more semiconductors and various electronic components. I don't think the trend will disappear quickly," he said.

Baader predicted that increasing "electronification," including the development of the so-called internet of things and autonomous vehicles, would spur stronger trade growth for the next two years.