The Americans have finally started on fixing their stricken banks, (which will spread to the dud ones in Europe, the UK and Japan) and investors went wild with a huge market rally.
But while this was happening there was a very timely reminder of the realties of the wider global economy.
Fixing the broken US banking system and their hobbled peers in Europe, the UK and Japan, is the first order issue, halting the global recession and the slumps in all major economies won’t get any traction until that is done.
So while markets soared, we learned that as night follows day, if global growth is going to be negative, so will global trade.
In fact global trade is facing its biggest ever fall this year.
For a country dependant on trade like Australia, it is very gloomy news; for a country who has built up its power and huge foreign exchange reserves off the back of being an export machine like China, it is also very gloomy news.
That makes the news extra gloomy for Australia.
The International Monetary Fund and the World Bank both reckon the global economy will see growth shrinking by between 0.5% and 1%, perhaps a bit more. That would make the recession to deepest since The Great Depression.
Now the World Trade Organisation sees world trade shrinking by a massive 9% this year, more than treble the 2.8% reduction forecast in January by a nervous IMF.
The slump in trade, outlined by the WTO in its look at world trade would be the biggest fall since World War 2.
The World Bank estimated earlier this month that worldwide industrial production may fall by up to 15% in 2009, driving the contraction in global growth.
The WTO said that in the wake of the “dramatic worsening” of the financial crisis in the last six months, real global output growth slowed by about half to 1.7% last year and will fall by between 1% and 2% this year.
“This is the first decline in total world production since the 1930s, and its impact is magnified in trade,” the report said.
“But WTO economists warn that the extraordinary turbulence of world markets in recent months and the continued uncertainty about the near-term trajectory of the global economy makes gauging the preliminary 2008 trade estimates and 2009 projections unusually difficult"
The report, along with the estimates from the IMF and World Bank, will be considered at the G-20 Leaders meeting next week, for a countries dependant on exports like Australia, Japan, Germany, South Korea, Taiwan, Brazil and a host of other nations, it’s a depressing read.
The volume of developed country exports will fall 10% this year; while trade-dependent developing countries will see export volumes shrink 2-3%. , the WTO said.
“Economic contraction in most of the industrial world and steep export declines already posted in the early months of this year by most major economies — particularly those in Asia — make for an unusually bleak 2009 trade assessment,” the WTO said in its survey.
The WTO said world trade dropped sharply in the last half of 2008 to show growth of just 2% over the whole year, after rising 6% in 2007.
December saw a dramatic plunge in trade volumes as major economies slumped into deep recessions with industrial production and exports falling sharply.
Those falls have continued into January and February, according to the flow of economic figures from central banks and governments. If anything the fall has accelerated.
Australian for instance faces a $A20 billion drop in the value of coal exports from next Wednesday, April 1, as new pricing for coking and thermal coal contracts kicks in: iron ore will see around $A10 billion dropped off, according to the most pessimistic of forecasters.
WTO Director-General Pascal Lamy noted in the report that production of many goods is sourced all over the world, so there is a multiplier effect, with trade falling even faster as demand drops.
"Governments must avoid making this bad situation worse by reverting to protectionist measures which in reality protect no nation and threaten the loss of more jobs," Lamy said.
He said the use of protectionist measures, now being monitored by the WTO, was on the rise and risked choking off trade as an engine of recovery.
Since the recession began to take hold in the last quarter of 2008 there has been little cause for optimism about the trade outlook in 2009; the financial crunch and banking crisis have choked off the flow of trade credit, slumping asset prices and rising unemployment have forced consumers to cut purchases of cars, consumer goods, (mobile phones, computers etc), business has chopped its investment plans, hurting a widening range of suppliers, and weak commodity prices are hurting a range of countries from Australia to countries in Africa.
In US dollar terms world merchandise goods exports rose 15% in 2008 to $US15.8 trillion, while exports of services rose 11% to $US3.7 trillion. Germany was again the world’s biggest exporter in 2008, with merchandise exports of $US1.47 trillion, just ahead of China at $US1.43 trillion.
For Australia, the WTO comments on China bear reading:
"Not even China, with its dynamic economy, can insulate itself from global downturn when most of its main trading partners are in recession.
"China’s exports to its top six trading partners (treating the EU as a single partner) represented 70% of the country’s total exports in 2007.
"All of these trading partn
