Maxim Labkowski
Global trade has deteriorated for the eighteenth consecutive month by the middle of the third quarter of 2023, according to the global Purchasing Managers Index (PMI) survey compiled by S&P Global Market Intelligence.
Inched up to 47.9 from 47.8 in August In July, the seasonally adjusted PMI new export orders index pointed to a continued contraction in global trade. That prolongs the worst secular period in global trade since the financial crisis.
Decline in trade in goods slows down, trade in services nearly stagnates
A decline in manufacturing exports continued to degrade trade in August. However, while trade in goods shrank at a slower pace, exports of services grew at the slowest pace in the ongoing sequence of expansions.
Convergence in performance narrows gap between manufacturing and services export indices to smallest this year four months.
Globally, manufacturing new export orders extended the contraction that began in March 2022. Still, the pace of the recession slowed from July and was in line with the rolling 12-month average, suggesting that the decline in goods trade had eased from its peak.
This was due to a smaller contraction in export orders for consumer goods and intermediate goods. Meanwhile, exports of investment goods fell by the most on record barring a pandemic recession.
The latest deterioration in new orders for investment goods and new export orders does not bode well for the broader manufacturing outlook.
Looking at more detailed sub-sectors, exports of industrial products, including construction materials and machinery and equipment, fell the most.
Trade in “raw materials” such as paper and wood products then declined. Globally, the destocking trend continues to weigh on manufacturing performance, but the decline in global investment spending appears to be accelerating, a trend that is worrisome given its broader implications for capital spending intentions.
Meanwhile, new export business by service providers continued to grow, albeit only modestly. Globally, new export business in the services sector expanded at the slowest rate in the current six-month growth sequence.
This reflects the continued fading of the post-pandemic travel boom in the third quarter. Furthermore, the impact of past rate hikes continued to negatively impact consumers’ willingness to spend and constrain the performance of services exports during the most recent survey period.
By region, trade activity declined in both developed and emerging markets in August. Small declines in emerging market manufacturing and services export orders contributed to a deterioration in overall trade conditions in the region for the second consecutive month.
The decline in new export orders in developed markets was larger overall, but this was entirely due to weaker trade in goods as trade in services continued to expand, albeit only slightly.
Europe still sees worst trade slump
Most of the top 10 economies monitored continued to report a decline in trade activity in August. This is measured by goods and services. The sharpest drop was in the European Union, where export orders fell at one of the fastest rates on record (excluding the pandemic period).
Detailed sectoral data showed that although the contraction in EU goods trade had slowed since July, it was still faster than that in services, which worsened further in August.
The UK followed the EU in recording the most significant drop in new export orders since November 2022. In the absence of the COVID-19 pandemic, new orders for goods received by the UK from overseas fell at the worst pace since the global financial crisis.
Britain’s exports of services held on to growth, but at the slowest rate in eight months, reflecting an unfavorable economic environment due to tightening financial conditions.
Meanwhile, growth in foreign demand for U.S. services has also slowed significantly as U.S. export orders contracted again due to a severe recession in manufacturing.
Japan, the best performer of the four advanced economies, saw the slowest decline in its trade performance as a contraction in trade in goods eased while foreign interest in Japan’s services sector remained strong.
India’s export orders grow at fastest pace in nine years
Looking at major emerging markets, India continued to perform best in August, with new export orders rising at the fastest pace in nine years since the survey began collecting export data (September 2014).
Both India’s manufacturing and services sectors are seeing steady growth in new jobs from abroad. It was followed by Russia, where export orders returned to growth due to faster growth in the services sector and renewed expansion of foreign goods orders.
In contrast, new export orders in Brazil and China continued to decline, although at a slower pace than in July. Continued improvement in Brazil’s services sector was offset by a drop in goods export orders in August.
On the other hand, service trade in mainland China has declined for the first time this year, shrinking along with the manufacturing sector.
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Editor’s note: Summary points for this article were selected by the Seeking Alpha editors.
