Emerging market import demand lifting world trade: S&P Global

LONDON (Reuters) - Strong demand for imports from developing nations is driving a recovery in world trade this year, with European Union countries likely to be the main beneficiaries, S&P Global Ratings said in a report on Tuesday.

FILE PHOTO: Containers are seen unloaded from the Maersk's Triple-E giant container ship Maersk Majestic, one of the world's largest container ships, at the Yangshan Deep Water Port, part of the Shanghai Free Trade Zone, in Shanghai, China, September 24, 2016. REUTERS/Aly Song/File Photo

While trade growth has languished in recent years, the report found global imports had risen by 4.1 percent year-on-year in the first two months of 2017 - growing at a much faster clip than 1.3 percent in 2016 and above the average annual growth rate of 2 percent between 2012-2016.

“World trade growth is gaining momentum after a prolonged period of weakness,” said S&P economist Tatiana Lysenko in the report, which is based on data from the Netherlands’ Bureau for Economic Policy Analysis, CPB.

“This pickup in global trade is benefiting the economies of the EU, the world’s largest exporter of manufactured goods and services,” Lysenko wrote, noting German exports had rebounded 5.5 percent year-on-year in the first quarter while Spain had posted a 13 percent gain in January-February.

Volumes of imported goods into emerging economies surged by nearly 10 percent at the start of the year after virtually stagnating in 2016, S&P said.

This stood in sharp contrast to developed economies, where import growth slowed to 0.4 percent in the same period after expanding 1.9 percent in 2016, with the exception of the United States, where import demand picked up at the start of the year.

Two major factors contributed to the recent surge in imports in emerging economies, Lysenko said. First, the recovery in commodity prices has helped Russia and Brazil to emerge from economic recession. China’s economy too has not slowed sharply as some had feared.

The second key factor is the recent appreciation of many emerging market currencies, S&P said.

It noted that both Russia and Brazil had seen their real effective exchange rate appreciate by 40 percent and 30 percent respectively over the past 16 months after having previously weakened by a similar magnitude.

However, without a stronger commodity price rise from here, the surge in emerging market imports could prove temporary as domestic demand in Brazil and Russia is expected to recover slowly.

In April, the World Trade Organization (WTO) said global trade was on track to expand by 2.4 percent this year, though added there was “deep uncertainty” about economic and policy developments, particularly in the United States.

A recent Reuters poll showed that economists saw the threat from trade protectionism casting a shadow over the broad-based upturn in the global economy.

Reporting by Karin Strohecker, editing by Pritha Sarkar