Here's another sign the global economy may be slowing down

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  • There’s more evidence that suggests the global economy has lost momentum in early 2018.
  • Air freight volumes are now growing at their slowest annual pace in 22 months.
  • IATA says growth should improve in the months ahead, although there are downside risks.

When it comes to the strength of the global economy, there are few better indicators out there than trade volumes.

After strengthening since early 2016, helped by a synchronised global economic upswing not seen before in the post-GFC era, there’s now growing evidence that suggests the best of the recovery is over.

Soft economic data such as PMI reports, after scaling fresh cyclical peaks late last year and in early 2018, have come off the boil in recent months, including readings on export orders.

Business sentiment has also started to waver, adding to signs the cycle may now be turning.

Now the hard data is starting to back up those soft data readings, adding to evidence that global demand is waning.

Take air freight volumes, for instance.

As an indicator of global demand, the amount of stuff whizzing through the air is as good a guide as one can get, especially as it is often released ahead of official trade data.

According to the International Air Transport Association (IATA), freight tonne kilometers (FTKs) — simply measuring cargo by weight by distance travelled — grew by just 1.7% in seasonally adjusted terms in the year to March, the weakest increase in 22 months.

That just happened to be at the start of the synchronised global economic upswing that now appears to have peaked.

IATA said the annual growth rate was some five percentage points below the level seen in February, underlining the sharp slowdown seen over the month.

Source: IATA

“The sharp growth slowdown is principally due to the end of the restocking cycle, during which businesses rapidly increased their inventory to meet unexpectedly high demand,” IATA said in a statement. “A softening of global trade is also evident.”

Despite the recent slowdown, Alexandre de Juniac, IATA’s director general and CEO, remained optimistic that the slowdown won’t turn into anything more sinister.

“It’s normal that growth slows at the end of a restocking cycle,” he said following the release of the March report.

“That clearly has happened.

“Looking ahead we remain optimistic that air cargo demand will grow by 4-5% this year.”

However, he said downside risks remain, especially on the geopolitical front.

“There are obviously some headwinds,” he said.

“Oil prices have risen strongly, and economic growth is patchy.

“The biggest damage could be political. The implementation of protectionist measures would be an own-goal for all involved — especially the US and China.”

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