Despite such factors as Europe's economic crisis, U.S. debt concerns, the economic aftershocks of the Japanese tsunami, and unrest in the Middle East, global trade grew in Q1/2012, albeit by only 1.78 percent. Europe's trade volume rose while other regions, including the United States and China, saw declines. Nevertheless, China continued to hold the top rank in our Global Trade Flow Index while others, such as Italy and India, moved down the chart.
U.S. trade declined 0.9 percent in Q1, reflecting the impact of the European financial crisis, a slowdown in emerging markets, weakening business investments, and falling real incomes. Sluggish domestic demand for nondurables and services, plus the slow recovery of housing construction and a continuing fiscal contraction all contributed to the decline. Still, the U.S. gross domestic product (GDP) growth rate increased by 0.9 percent during that period.
The euro zone's total trade rose by 1.2 percent in Q1. This boost may be associated with actions designed to reduce economic risk, including two liquidity injections by the European Central Bank, the completion of the Greek debt swap, and the agreement on a second bailout program.
Contrast that with China, where tighter domestic policies dampened investment and trade growth dropped sharply, from 2.7 percent in Q4/2011 to 1.5 percent in Q1/2012. A slowing Chinese economy and weak demand in developing countries, compounded by reduced demand for Chinese component exports, are likely to weigh on overall economic growth in East Asia.
Entering Q2/2012, global trade flow was expected to continue to increase provided Europe is able to mitigate its financial risk. Other historic events weigh heavily on the forecasts, however, including aftereffects of the Japanese earthquake that have yet to reach Asian economies. Meanwhile, turmoil in the Middle East, India's July power outage, and the drought in the United States are likely to cause further deterioration of economic conditions.