Watch These 11 China Activity Measures to Predict Global TradeBy
Eleven Chinese economic indicators signal a global trade slowdown through year-end.
A composite of gauges -- spanning construction and trade to rail freight and steel output -- has proven a strong leading indicator of world trade, according to figures compiled by Oxford Economics Ltd. Their “China Factor” index since 2010 has produced an 82 percent correlation with the year-on-year pace of global trade with a three-month lead.
That spells some trouble ahead though, as the China Factor slowed in August to a 0.96 percent year-over-year decline, its lowest level of 2017, from a 0.37 percent drop in July.
"We now see China slowing gently into 2018, meaning trade impetus has to come from somewhere else," said Gabriel Sterne, Oxford’s global head of macro research in London. “Next year we do see a slowdown in trade growth, but still healthy by the standards of recent years.”
While Oxford has compiled the figures since 2006, the fading effects of the last global recession and the greater impact of Beijing’s policy shifts have contributed to an even stronger China-trade correlation since 2010. The firm compiles goods import volumes to calculate the quarterly world trade figure, and updates it monthly to reflect fresh data.
The world’s biggest trading nation is scheduled to release third-quarter gross domestic product data Thursday, with the median forecast in a Bloomberg survey estimating a slight moderation to 6.8 percent year-on-year expansion, from 6.9 percent the previous quarter. September industrial production is forecast to accelerate to 6.5 percent growth from the previous year. Exports accelerated in September, while imports rose the most since March.
As a quarter-ahead leading indicator of global trade, the projection ability of Oxford’s gauge is almost twice as strong as that of a similar U.S. activity index, and it more than doubles the correlation for a comparable Eurozone gauge, Oxford’s data show. The China index also has demonstrated a 64 percent correlation with the trade figures six months in advance.