Recovery in world trade of goods eases fears of permanent damage

Global trade in goods has continued to bounce back rapidly from its huge fall a year ago, with an authoritative index recording the fastest monthly increase in December in its 19-year history.<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

Data from the Bureau for Economic Policy Analysis, a Dutch research institute, suggest that little permanent damage has been done to the world trading system by the financial crisis.

The bureau's widely watched composite index said that the volume of goods trade worldwide rose at 4.8 per cent in December.

The less volatile three-monthly measure also rose by a record rate in the fourth quarter of last year, finishing 6 per cent higher than in the third quarter.

Richard Baldwin, professor of international economics at the Graduate Institute in <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />Geneva, said that the rapid recovery suggested that it was largely a fall in demand that had caused trade to contract.

“A large part of the fall was the shock to expectations – the ‘Oh my God' factor,” he said. “Anything postponable largely got postponed.”

In the aftermath of the banking crisis, Prof Baldwin said, consumers cut back sharply on consumer durables and businesses put investments on ice. He calculates that those “postponable” goods make up 60-70 per cent of global trade. When those purchases resumed from mid-2009 and buyers sought to make up lost ground, the fall in trade was rapidly reversed.

Economists have been puzzling over why the fall in international commerce was so rapid. Between October 2008 and January 2009, global goods trade fell by about 20 per cent, a faster decline relative to economic growth than during the Great Depression.