Emerging Markets Weekly

The global trade rebound over the past year has been largely unreported but represents an important development for export oriented countries such as China. What has been widely reported is the export-led economic slowdown in China in the fourth quarter of 2008 due to the global credit crisis, capital flight from China and the sharp fall in global trade. In response to the abrupt slowdown in China’s economy, policymakers enacted a US$586-billion fiscal stimulus in conjunction with a very aggressive monetary stimulus through the banking system. What is notable about the sharp growth rebound is that it was dominated by fixed asset investment although retail sales did expand strongly over the past year from a low base.

What is encouraging now, is the fact that exports have rebounded strongly since March 2009 which represents the nadir for the global credit crisis. Exports basically fell off the map as the chart below illustrates. After peaking at roughly US$140-billion in October 2008, they were cut by more than half up until they bottomed at close to US$60-billion in March 2009. Notice the impressive rebound in exports over the balance of the year where they finished just shy of the high water mark in 2008.

The rebound in exports is important because China has been heavily reliant on government stimulus over the past year and needs to move to a more balanced form of economic growth. While it will take several years to rebalance the economy toward domestic demand, the rebound in trade is a very important development from a near term perspective.