Understanding the Weakness in Global Trade - What is the New Normal?

48 Pages Posted: 26 Sep 2016

See all articles by Bruno Cabrillac

Bruno Cabrillac

Banque de France

Alexander Al-Haschimi

European Central Bank (ECB)

Oxana Babecká Kucharčuková

Czech National Bank (CNB)

Alessandro Borin

Bank of Italy

Matthieu Bussière

Banque de France

Rafael Cezar

Banque de France

Alexis Derviz

Czech National Bank (CNB) - Monetary Department

Dimitra Dimitropoulou

Bank of Greece

Laurent Ferrara

Banque de France; Université Paris Ouest - Nanterre, La Défense - EconomiX

Martin Gächter

European Central Bank (ECB)

Guillaume Gaulier

Banque de France

Juhana Hukkinen

Bank of Finland - Financial Markets

Mary Keeney

Central Bank and Financial Services Authority of Ireland

David Lodge

European Central Bank (ECB)

Michele Mancini

Bank of Italy

Clément Marsilli

Banque de France; Université de Franche-Comté

Jaime Martinez-Martin

European Central Bank (ECB); Banco de España

Wojciech Mroczek

National Bank of Poland

Jakub Muck

National Bank of Poland - Department of Economics; Warsaw School of Economics (SGH) - Institute of Econometrics

Elena Pavlova

European Central Bank (ECB)

Judit Rariga

Magyar Nemzeti Bank

Juozas Šalaševičius

Bank of Lithuania

Daniel Santabárbara

Banco de España

Frauke Skudelny

European Central Bank (ECB)

Ulf D. Slopek

Deutsche Bundesbank

Walter Steingress

Banque de France

Alex Tuckett

Bank of England

Neeltje van Horen

Bank of England; Centre for Economic Policy Research (CEPR)

Duncan Van Limbergen

De Nederlandsche Bank

Laurent Walravens

National Bank of Belgium

Julia Wörz

Oesterreichische Nationalbank (OeNB)

Date Written: September 16, 2016

Abstract

Global trade has been exceptionally weak over the past four years. While global trade grew at approximately twice the rate of GDP prior to the Great Recession, the ratio of global trade to GDP growth has declined to about unity since 2012. This paper assesses to what extent the change in the relationship between global trade and global economic activity is a temporary phenomenon or constitutes a lasting change. It finds that global trade growth has been primarily dampened by two factors. First, compositional factors, including geographical shifts in economic activity and changes in the composition of aggregate demand, have weighed on the sensitivity of trade to economic activity. Second, structural developments, such as waning growth in global value chains, a rise in non-tariff protectionist measures and a declining marginal impact of financial deepening, are dampening the support from factors that boosted global trade in the past. Notwithstanding the particularly pronounced weakness in 2015 that is assessed to be mostly a temporary phenomenon owing to a number of country-specific adverse shocks, the upside potential for trade over the medium term appears to be limited. The “new normal” for global trade can therefore be expected to look broadly similar to the weakness observed over recent years on average. In this sense, buoyant trade dynamics in the 1990s and early 2000s may have been what was exceptional, rather than the slowdown over recent years.

Keywords: global trade slowdown, trade elasticity, global value chains, frictions in global trade, protectionism

JEL Classification: F10, F13, F14, F15

Suggested Citation

Cabrillac, Bruno and Al-Haschimi, Alexander and Babecká Kucharčuková, Oxana and Borin, Alessandro and Bussiere, Matthieu and Cezar, Rafael and Derviz, Alexis and Dimitropoulou, Dimitra and Ferrara, Laurent and Gächter, Martin and Gaulier, Guillaume and Hukkinen, Juhana and Keeney, Mary and Lodge, David and Mancini, Michele and Marsilli, Clément and Martinez-Martin, Jaime and Mroczek, Wojciech and Muck, Jakub and Pavlova, Elena and Rariga, Judit and Šalaševičius, Juozas and Santabárbara, Daniel and Skudelny, Frauke and Slopek, Ulf D. and Steingress, Walter and Tuckett, Alex and van Horen, Neeltje and Van Limbergen, Duncan and Walravens, Laurent and Wörz, Julia, Understanding the Weakness in Global Trade - What is the New Normal? (September 16, 2016). ECB Occasional Paper No. 178. Available at SSRN: https://ssrn.com/abstract=2839779

Bruno Cabrillac (Contact Author)

Banque de France ( email )

Paris
France

Alexander Al-Haschimi

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Oxana Babecká Kucharčuková

Czech National Bank (CNB) ( email )

Na Prikope 28
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Czech Republic

Alessandro Borin

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Matthieu Bussiere

Banque de France ( email )

Paris
France

Rafael Cezar

Banque de France ( email )

Paris
France

Alexis Derviz

Czech National Bank (CNB) - Monetary Department ( email )

Na Prikope 28
CZ-11503 Praha 1
Czech Republic

Dimitra Dimitropoulou

Bank of Greece ( email )

21 E. Venizelos Avenue
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Laurent Ferrara

Banque de France ( email )

Paris
France

Université Paris Ouest - Nanterre, La Défense - EconomiX ( email )

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Martin Gächter

European Central Bank (ECB) ( email )

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Germany

Guillaume Gaulier

Banque de France ( email )

Paris
France

Juhana Hukkinen

Bank of Finland - Financial Markets ( email )

P.O Box 160
FIN-00101 Helsinki
Finland

Mary Keeney

Central Bank and Financial Services Authority of Ireland ( email )

P.O. 559 Dame Street
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Ireland

David Lodge

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Michele Mancini

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Clément Marsilli

Banque de France ( email )

Paris
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Université de Franche-Comté ( email )

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France

Jaime Martinez-Martin

European Central Bank (ECB) ( email )

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Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Wojciech Mroczek

National Bank of Poland ( email )

00-919 Warsaw
Poland

Jakub Muck

National Bank of Poland - Department of Economics ( email )

00-919 Warsaw
Poland

Warsaw School of Economics (SGH) - Institute of Econometrics ( email )

Niepodleglosci 164
Warsaw, 02-554
Poland

Elena Pavlova

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Judit Rariga

Magyar Nemzeti Bank ( email )

Szabadsag ter 8-9
Budapest, H-1850
Hungary

Juozas Šalaševičius

Bank of Lithuania ( email )

Totoriu 4
Vilnius, LT-01121
Lithuania

Daniel Santabárbara

Banco de España ( email )

C/ Alcalá, 48
Madrid, 28014
Spain

Frauke Skudelny

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Ulf D. Slopek

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Walter Steingress

Banque de France ( email )

Paris
France

Alex Tuckett

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Neeltje Van Horen

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

HOME PAGE: http://https://www.bankofengland.co.uk/research/Researchers/neeltje-van-horen

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Duncan Van Limbergen

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Laurent Walravens

National Bank of Belgium ( email )

Brussels, B-1000
Belgium

Julia Wörz

Oesterreichische Nationalbank (OeNB) ( email )

Otto-Wagner-Platz 3, PO Box 61
Vienna,
1010 Vienna, A-1011
Austria

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