The heady expectations that fueled the recent bull market are starting to fade. After a sharp run up in financial markets, more bearish analysts and business people are coming back to the idea that we’ve hit a new normal—one that will be fraught with financial turbulence, protectionist policies and sluggish trade for years to come.
“With the end of cheap money from the Fed, one of the major threats for global growth now stems from the rise in protectionism. Moreover, the international spillover from unconventional monetary policies could increase this risk in the future,” wrote Societe Generale’s Patrick Legland in a note published yesterday.
Executives like Fedex’s Frederick Wallace Smith agree. “The last several years have seen a sea change in international trade and in international transportation,” Smith said in a conference call earlier this month, blaming persistently high oil prices and macroeconomic policies. “For the first time really in modern history, you’ve seen in the last couple of years, worldwide GDP grow faster than worldwide trade. And a few years ago, worldwide trade was growing 2, 2.5 times the growth of world GDP.”
Indeed, the volume of goods traded globally has grown more slowly than gross world product (the combined GDPs of all countries) in recent years, though it’s worth noting that slower global trade is typical after a financial crisis or market crash.
The World Trade Organization shares Legand’s and Smith’s concern that trade sluggishness will persist. In a report released in April, the WTO predicted:
At some point in the future trade growth will again surpass its 20 year average [of 5.3%], if only because this average keeps falling with every passing year of sub-par growth. When or if it will manage to bridge the gap with its pre-crisis trend remains to be seen. In addition to a durable level shift in the series, it appears that the fundamental growth rate of world trade volumes has also been reduced. To return to this trend would require a period of very rapid trade expansion at some point in the future, but such a boom in trade does not appear likely any time soon.
With consumers retrenching, and loose monetary policy failing to fill the void, this new paradigm poses a whole new challenge for businesses.