Why is global trade growth slow?

One of the more unusual and unexplained global macroeconomic phenomenons in the last 6-12 months or so is the weakness in global trade activity. While leading indicators and growth have generally pointed to an improvement in activity, according to CPB data, global exports have grown at 3.5%YoY in the last 3 months, which is substantially slower than we have seen during previous upswings in leading indicators.

It would also appear that the weakness has been shared globally.  Export volumes in emerging Asia, which has been central to the boom in trade via globalisation of supply chains, have been soft. Chinese exports in particular have been disappointing.

Exports from advanced economies have also been disappointingly slow.  This manifested itself most clearly in the recent US GDP data, with exports a large drag on activity.

There have been some large forex moves in the past 12-18 months.  The Yen has had the most notable nominal depreciation, but the real appreciation in the Renminbi has been large, with some of these gains given up by the recent shift in course on FX policy in Beijing.

But this alone probably doesn't explain why trade growth has weakened.  It is perhaps a further sign that the benefits of highly, disintegrated production process are diminishing, particularly in the wake of the crisis and the reductions in cross border financing.

The impact of a slowdown in global flows could be very important.  McKinsey has just released a report (which can be found here) highlighting the importance of interconnectedness in the global economy, with those countries tapping into global flows tending to grow faster than those that don't.  So this will be a trend that will be need to be monitored.