The failure of world trade to pick up steam will especially hurt small open economies such as Finland, says Tuuli Koivu, an economist at Nordea.
Tuuli Koivu, an economist at Nordea, has delivered another piece of bad news to Finland: no significant recovery in global trade is in sight.
“Sluggish global trade has become a symbol of global economic recovery. The sluggish development will especially hurt small open economies such as Finland. The fact that no significant recovery in trade is in sight is toxic for Finland's export-driven economy that is waiting to start its recovery,” she writes in her blog.
Koivu points out that global trade grew rapidly in the early 2000s, with the volume of goods crossing national borders nearly doubling over the course of a decade and with trade growing nearly twice as rapidly as the world gross domestic product.
The growth, however, was brought to an abrupt halt by the economic crisis. Trade has since barely managed to keep step with production and stagnated entirely over the past couple of years, she says.
“One reason for the sluggish trade is the halt in the de-regulation of trading. The last major leap was taken in 2001 when China became a member of the World Trade Organisation (WTO). Progress has since been slow and, for example, the trade negotiations between the European Union and the United States have hit a deadlock. Protectionism re-surfaced widely after the financial crisis and trade disputes have become more common, according to a summer report by the WTO,” she says.
Brexit, she adds, would be very likely to increase the obstacles to trade in Europe. In the United States, meanwhile, Donald Trump has concentrated on criticising free trade on the campaign trail and promised to impose high tariffs on goods imports from China and Mexico if he takes the White House.
“Finding proponents of free trade is difficult as more and more people perceive globalisation as a detrimental development,” laments Koivu.
She estimates that economic growth has also been thwarted by structural problems: Consumption has been one of the key drivers of recovery from the financial crisis, while investments in equipment and machinery have slowed down. Globalisation, in turn, is no longer as potent a driver of growth due to a decline in the willingness to transfer production activities abroad.
Koivu argues that the recovery of trade is also undermined by the fact that developing economies account for a rising share of global economic growth. Growth in these economies tends to spur domestic consumption rather than global trade due to low levels of income, she explains.
“Changes in the described circumstances occur slowly and therefore trade seems likely to develop sluggishly also in the coming years. If Finland wants to boost its exports amid such developments, it would have to take over market shares from other countries. This would require sound competitiveness,” concludes Koivu.
Aleksi Teivainen – HT Photo: Mikko Stig – Lehtikuva Source: Uusi Suomi
