Paul Krugman has noticed that trade has absolutely collapsed with this economic downturn. It is worse than the Great Depression.
Question: is this aiding global re-balancing?
Here are two data points from Europe today which lead to that question.
The BBC reports on Germany:
Germany’s trade surplus fell 43% in August after a drop in exports from Europe’s biggest economy, according to the national statistics office.
Germany exported 8.1bn euros (£7.45bn;$11.95bn) more goods than it imported in August, down from 14.1bn euros in July.
The fall in exports was the first for four months and had not been expected.
Most focused on whether this trade reduction, especially the decline in export from export-powerhouse Germany meant that recovery has stalled. I think the more important question is whether the trade flows are representative of re-balancing.
On that same subject, we get data from debtor Britain via the Guardian saying the current account imbalance is also narrowing:
The trade deficit has narrowed during the financial crisis from £8bn to £6.2bn in the year to August, while the tentative global recovery is also helping exporters.
Britain’s trade deficit with the rest of the world narrowed modestly in August to £6.2bn as exporters sought to capitalise on the sliding pound, and the recovery in overseas markets.
Yawning trade deficits have been a symptom of Britain’s out-of-kilter economy over the past decade. Mervyn King, the Bank of England governor, has repeatedly said he would like the weakness of sterling to bring about a "rebalancing" in the economy, by boosting exports.
The trade deficit in goods has been narrowing since the crisis began, and official figures released this morning showed that it was £6.2bn in August, down from £6.4bn in July, and more than £8bn in August 2008.
The ONS said exports actually fell, by £100m over the month, but imports fell faster, by £300m, as consumers tightened their belts. However, Vicky Redwood, of Capital Economics, pointed out that exports rose by 1.6% in the three months to August – the first quarterly rise in over a year.
It certainly helps that the pound has fallen apart, but the decrease in Britain’s current account deficit is mirrored in debtor America as well. So, while trade flows are diminishing, so too are trade imbalances.