Rising tide of trade – RBA links lift in global merchandise trade to Australia’s outlook
In a recent Statement on Monetary Policy, the Reserve Bank of Australia (RBA) has pointed to a 9% rise in growth in the value of global merchandised trade for the year to the end of May, as an indicator of the prospects and outlook for the Australian economy. Without a flicker, the RBA has pointed directly to reinvigorated Chinese demand for imports from the middle of 2016, as a driver for much of the global increase.
It can be seen in the chart below, that regardless of the cause, the growth in merchandise trade has also impacted volumes, which were up approximately 5% over the same timeframe. That is, volumes rose, but prices rose faster, at least on average.
While the China story is a somewhat old message, the RBA has commented in particular that:
“More recently, a number of commodity-exporting emerging economies have also contributed to global import growth.”
It goes on to describe these economies as those, including Brazil and Russia, which have recently exited recessions brought about by the commodity price slump of 2014 and 2015.
Importantly, the same analysis indicates that these typical commodity exporters are playing their part on both sides of the trade ledger – exporting and importing. On the import side, their efforts appear to be supported by investment, not only by consumption expenditure. This is borne out by the chart below, which shows the exports from countries that are not commodity exporters, on the left hand side. That data shows a large lift in export volumes and values for industrial materials, capital goods and other merchandise that is used to conduct domestic economic activity.
Other commentary from the RBA suggests that much of the movement of formative capital and materials is integrated into global supply chains. Electronic equipment for example is being one extensively shipped, causing its inputs to be shipped in turn.
It is true that the RBA’s monthly Statement on Monetary Policy can make for slightly dry reading. But the Statement, as does much from the nation’s central bank, invariably contains information and messages that are critical to understanding the position of the domestic economy, its trajectory, and the levers being exercised to direct its course.
At the headline level, the RBA’s statement for August continues its expectation that economic growth will be around 3% per annum for the next two years, that unemployment will drift marginally lower and that inflation will shift modestly higher over the same period. The bank also points to ‘accommodative interest rates’ (read ‘accommodative’ to mean ‘low’) as a supporter of this general outlook.
As Spring begins, the global economy also appears to be showing new growth, and that is a welcome development.