A couple of weeks ago, Floyd Norris, in a post on the New York Times website, documented the recent “surge in trade” in some parts of the world. The accompanying fancy graphic du jour showed how exports are growing (or not) in 12 economies, four from each of three broad categories: G7, PIGS and emerging economic powers. The mostly healthy figures led Norris to conclude that:
“World trade is rising rapidly around the world, providing more evidence of a global recovery led by emerging economies. But some European countries are lagging, in part because they are not competitive with their neighbors.”
The impression one could be forgiven for taking away was that a three-tier global economy is emerging, where the major economies resume their balanced growth path, emerging economies resume their fast growth and a middle tier of uncompetitive mostly eurozone economies get left behind. Is that what’s going on? And more generally, which countries has this so-called “Great Recession” hit hardest?
Growth rates or levels?
The first point to make regarding the graph is that it only shows growth rates. That may sound fine but if I said to an American that while house prices in many parts of the US are static at the moment, prices in Detroit are back in double-digit growth territory, most Americans would be quick to point out that the falls in Detroit were much larger so compared to the peak, it’s probably still one of the worst hit areas.
The same applies for global trade. Not all countries were affected equally by the so-called “Great Recession”. Those countries exposed to certain sectors, especially cars but also some IT sectors, were among the worst affected, while others – more reliant on pharmaceuticals – escaped with a much smaller fall in trade.
The graph below tries to capture that point. Using OECD monthly data on goods exports, it looks at how much lower 2009 trade was, using the first half of 2008 (before the trade collapse hit) as the frame of reference. The number is calculated as the approximate number of months of 2009 trade lost by each country. It ranges from 1.5 months in Ireland, whose merchandise exports are dominated by pharmaceuticals, to almost 5 months in Finland, whose exports are dominated by mobile phones. The average for the OECD was just over three months.
Three different types of country are represented by different colours. The red countries are the so-called PIIGS countries, the dark brown countries correspond to the other high-income countries, while the light brown countries are middle-income countries also included in the OECD database.
PIGS, cars and China
Bearing in mind the NYT conclusion, the first thing to notice is that the PIIGS countries (in red) do not have a common experience in terms of how much their exporting sectors have been affected. This should not be a surprise, as it is the nature of the exporting sector, not the government finances, that has shaped countries’ trading fortunes over the past two years.
It also reinforces the point I made a couple of weeks ago that it’s very important for journalists with a global reach to do their homework before publishing their latest fancy graphic, be it on the PIIGS or any other topic for that matter. As its trade performance shows, the global recession has largely been a coincidence for Ireland – its troubles are largely of its own making and revolve around construction and government spending. (This is not to deny linkages, particularly down the line, between the two…)
The second thing to point out is that, with countries affected on such different scales, a 10% rebound in exports is going to mean very different things in different places. The Scandinavian countries, and Russia, collectively the worst hit countries, would have expected nothing other than a quick rebound, at the very least a partial one. Likewise the car-exporters of Germany and Japan, whose export graphs were looking very scary about a year ago. Other countries, such as Australia, Indonesia and Korea seem to be buoyed by the China effect spotted on this blog six months ago.
The last thing to point out is a point made in the NYT article: exports are only half the story. The other half is imports, or rather the trade balance. The good news for the US – that it is among the least affected in terms of lost months of trade – is tempered by the fact that its trade deficit is so large. Other countries, which had perhaps been under-spending in recent years, have now found their surplus closed without the opportunity to splurge on exports.
This blog’s campaign for economically literate graphs will continue… Graph by graph, we’ll get there!