World trade down, industrial production up in 2Q, but is a turning point nearby? - ING

Daniel Bosgraaf, Economist at ING, notes that the world trade registers a bump for the first time in four months but quarterly results remain negative, whereas industrial production remains on an upward growth path.

Key Quotes

“The volume of trade in goods grew 0.7% MoM in June, according to data released today by The Netherlands Bureau of Policy Analysis (CPB). This is good news after the 0.5% decline in May, which was the third consecutive month of decline. However, the jump in June was not enough to end 2Q16 with a positive result: 0.8% less trade, which is disappointing after 0% growth in 1Q.

Monthly world trade data are notoriously volatile and often subject to considerable revisions. They are an imperfect measure of global trade but the best we have. Up to now, the CPB has registered 0% growth in 1H16 compared with 1H15, losing sync with the development of global industrial production. Global industrial production grew 0.6% in June. In contrast to disappointing quarterly world trade growth, this was the fourth consecutive month of global industrial production growth. This sums to 1% growth in 1H16 from 1H15.

The reported uptick of growth in June may mark a turning point for world trade in the sense that the positive link between world trade and global industrial production may be restored. ING maintains its view that 2016 will end with a positive world trade figure. However, the traditional link between world trade and industrial production is expected to remain weaker than in the past as increased protectionism, re-shoring and greenfield investment for domestic demand and a slowdown of global value chain expansion will continue to weigh heavily on world trade.”