ECB Says Weak Trade Is the ‘New Normal’ in Post-Crisis World

  • Different factors have led to lower trade-income elasticity
  • ECB expects global trade to be at parity with global GDP

Trade is likely to remain weak in the coming years, according to a report by the European Central Bank.

While global trade grew on average roughly twice as fast as global output prior to the financial crisis, the ratio of imports to world GDP has largely stagnated over the last five years and will probably remain at current levels, the ECB wrote in an economic bulletin published Tuesday. The increasing importance of emerging economies, whose growth is typically less trade intensive, as well as diminishing structural factors have lowered trade elasticities on a global and national level, according to the report.

“Looking ahead, the structural factors seem unlikely to reverse over the medium term,” the ECB said in the report. “The gradual shift of activity towards emerging market economies is widely anticipated to persist. Moreover, the structural developments that boosted trade in the past -- falling transportation costs, trade liberalization, expanding global value chains and financial deepening -- are not expected to support trade to the same extent over the medium term.”

For the world excluding the euro area, trade elasticity fell from 1.8 before the crisis in 1995-2007 to 0.9 in 2012-2015. Some of that weakness, particularly last year, was driven by adverse shocks in countries like Russia and Brazil, according to the report. The ECB expects global trade growth to gradually rise to levels consistent with global GDP, bringing the global trade-income elasticity -- excluding the euro area -- back to the “new normal” of a value around parity.

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