When it comes to global trade, supply chain disruptions could remain high until 2H 2022 amid renewed Covid-19 outbreaks around the world, China’s sustained zero-Covid policy, and demand and logistic volatility during the Lunar New Year, said Euler Hermes recently when releasing its Global Trade Report.
Nevertheless, the trade credit insurer expects trade growth to remain strong through 2022 and 2023, with some clear winners across regions and sectors.
- After exceptionally strong performance since H2 2020, global trade of goods contracted in Q3 2021, especially in advanced and emerging economies.
- However, advanced economies are suffering more from supply chain bottlenecks rather than trouble with demand: production shortfalls are behind 75% of the current contraction in global volume of trade, with the rest explained by transport delays.
- Looking ahead, rapidly growing orders for new transportation capacity (6.4% of the existing fleet) should turn operational towards the end of 2022 while increased spending on port infrastructure in the US should significantly ease global shipping bottlenecks.
Trade growth in 2022 and 2023
Overall, global trade will grow by +5.4% in 2022 and +4.0% in 2023, said Euler Hermes.
While there is a risk of a double-dip in Q1 2022, Euler Hermes expects a normalisation of international trade flows in volume from H2 2022, driven by three factors:
- A cooling down of consumer spending on durable goods, given their longer replacement cycle and the shift towards more sustainable consumption behaviours;
- Less acute input shortages as inventories have returned to or even exceeded pre-crisis levels in most sectors, and capex has increased (mainly in the US); and
- Reduced shipping congestions (global orders for new container ships have reached record highs over the past few months, amounting to 6.4% of the existing fleet) and the planned US$17 billion spending on port infrastructure in the US.
“We expect that growth gradually return to its pre-crisis average levels after 2022 and 2033. However, this comes at the expense increased global imbalances,” said Françoise Huang, Senior Economist for Asia Pacific at Euler Hermes.
The US will register record-high trade deficits (around US$1.3trn in 2022-2023), mirrored by a record-high trade surplus in China (US$760bn on average), she noted, adding that the Eurozone will also see higher-than-average surplus of around US$330bn.
Europe losing the tug-of-war against the US when it comes to inputs from China
Europe is more at risk compared to the US when it comes to the heavy reliance on intermediate inputs from abroad, the trade credit insurer said.
Without production capacity increases and investments in port infrastructure, the normalisation of supply bottlenecks in Europe could be delayed beyond 2022 if demand remains above potential, Euler Hermes predicted.
The household equipment, consumer electronics, automotive and machinery and equipment sectors are most vulnerable to input shortages, the firm added.
“China is a key downside risk for Europe: we estimate that a 10% drop in EU imports from China could be a drag of more than -6% on the metal sector, more than -3% on the automotive sector (incl. transport equipment) and more than -1% on computer and electronics,” said Ano Kuhanathan, Senior Sector Advisor at Euler Hermes.
Reshoring and nearshoring will remain more talk than walk
Despite the ongoing global supply chain disruption, Euler Hermes finds no clear trend of reshoring or nearshoring of industrial activities so far.
The only exception is the UK, which is likely to have faced disruptions due to Brexit, the firm said.
However, protectionism reached a record high in 2021 and should remain elevated, mainly in the form of non-tariff trade barriers such as subsidies and industrial policies, the firm added.
Euler Hermes estimates that the energy, electronics and machinery & equipment sectors should continue to outperform in 2022.
But the main export winner globally in 2023 should be automotive, thanks to the backlog of work and lower capex in 2021, the firm predicted.
“Based on our research, Asia Pacific will continue to be the main export winner with an estimated export gains exceeding US$3 trillion in 2021-2023,” said Paul Flanagan, Regional CEO at Euler Hermes Asia Pacific.
With the Regional Comprehensive Economic Partnership (RCEP) set to take effect on 1 January 2022, regional integration is expected to further intensify going forward, he noted.
However, global insolvency is looming and not to be neglected, he warned.
Business leaders should take stock of their payment and risk mitigating measures when navigating into the post-pandemic recovery, he advised.