The global economy: worse, better or the same?

Author: Vasilis Nikolaou

Assembly line at Hyundai Motor Company’s car factory in

South Korea. Image by Taneli Rajala/Wikimedia.

International trade shows the flow of imports and exports between countries of the European Union (Intra-EU trade) and between EU Member States and non-EU countries (extra-EU trade). It is an indicator of a country’s economic health and prosperity. Therefore, the statistics of international trade used as a means for tracking the value and quantity of goods traded are monitoring the progress of the European and global economy.

Figure 1 below shows the trade in goods by the main world traders: EU-27, USA, Japan, China, India and Brazil in 2010. As can be seen, with the exception of Japan, the other two advanced global economies of USA and EU-27 had a negative balance of €520.02 and €174.2 billion respectively. On the other hand, the world’s second largest economy China had a surplus of €138.8 billion while neighbouring India reported a small negative balance of €36 billion. Moreover, Brazil, Latin America’s largest economy, exhibited an almost equal number of exports and imports resulting to a small surplus of €13 billion in 2010.

Figure 1. Trade value (billion EUR) in 2010 by main world traders.

Taking a closer look in Europe’s trade statistics in 2010 (Figure 2), we can see that Germany (DE), Europe’s largest economy, had the biggest positive trade balance of €154 billion, followed by the Netherlands (NL) and Ireland (IE) with €44 and €42 billion respectively. On the other end, the United Kingdom (GB) had the biggest trade deficit of €132 billion followed by France (FR), Spain (ES) and Greece (GR) with negative trade balances of €65, €55 and €32 billion euros respectively.

Figure 2. EU Trade balance (billion EUR) in 2010.

Figure 3 shows Germany’s trade with the main trading partners in the last 10 years (2002 – 2011). As can be seen, Germany’s exports to the USA were constantly much higher than its imports. Despite their steep decline in 2009, due to the start of the recession in the Eurozone, German exports to the USA continued their upward course and by 2011 reached 5-year highs.

Although Germany’s imports from China were constantly higher than its exports throughout the period 2002-2010, it appears that by 2011 Germany is exporting to China as much as it is importing. It is also worth noticing that Germany’s exports to China were almost as much as its exports to the USA!

Moreover, Germany’s exports to India and Brazil are constantly increasing at a higher rate than the country’s exports to Japan, implying a shift of Germany’s trade towards the developing economies.

Figure 3. Germany’s trade with main world traders during 2002-2011.

However, the expanding economic growth of Germany and its main trading partners did not last long (Figure 4). Annual growth figures (as % of GDP) suggest that all countries that are driving the global economy have lost steam: Germany’s growth dropped from 3.7% in 2010 to 3% in 2011; in the same period the USA dropped from 3% to 1.7%; Japan from 4.4% to -0.7% (mainly due to last year’s major disasters); China from 10.4% to 9.3%; India from 9.6% to 6.9% and Brazil dropped from 7.5% to 2.7%.

Consequently, global economic growth fell from 4.3% in 2010 to 2.7% in 2011 (Figure 5). One can notice the negative impact the recession had on the world’s economy in 2009 followed by a fast recovery in the following year but another decline the year after.

The IMF’s Christine Lagarde's warnings of more global growth cuts are confirmed by Eurostat’s predictions of a further shrinkage of the German economy to 0.7% growth in 2012 (Figure 4). In the same year, China’s second-quarter GDP growth has slowed to 7.5%; India's GDP is expected to grow by 6.5% according to the Asian development Bank while Brazil’s growth is expected to be 1.9% this year.

Figure 4. GDP growth (annual %) in 2002-2012 by country.

However, the USA's growth is expected to slightly increase from last year to 2% in 2012 while Japan's growth, according to the Bank of Japan, will increase to 2.2%.

In conclusion, a soft recovery of the economy as expected by the USA and Japan may drive the rest of the countries to bolster their economies and put an end to a long-term recession.

Figure 5. World growth (%GDP).