It looks like global trade is already slowing down -- even before a potential trade war

Getty ImagesThe Antonov An-225 Mriya.
  • Measuring global air freight provides an excellent real-time guide to changes in demand.
  • Growth has been slowing recently after nearly two years of double-digit gains.
  • Separate indicators suggest growth could slow even further, even before the threat of a trade war between the US and China is taken into consideration.

If you want to know what’s happening in the global economy, especially in trade, there are few better indicators than the amount of stuff being flown around the world.

It’s both fast and measurable, providing an excellent real-time guide to changes in demand.

After a strong period in 2016 and 2017, powered by the now often-quoted “synchronised global economic recovery”, an interesting shift has taken place recently.

Growth in freight volume is starting to slow, mirroring a softening in new order growth in recent global manufacturing Purchasing Manager Indices (PMI).

This chart from the International Air Transport Association (IATA) shows the recent moderation in both metrics.

Source: IATA

For those who are wondering, freight tonne kilometers, or FTKs, is calculated by measuring the weight of air cargo by distance traveled.

The weight of stuff multiplied by distance it’s moved, in a nutshell.

Since the middle of last year, growth in FTKs has moderated in seasonally adjusted terms, with the lead indicators pointing to further softening ahead.

“It is worth noting that the new export orders component of the global manufacturing PMI has softened in a number of key exporting countries in recent months, perhaps partly reflecting heightened concerns of a trade war,” IATA says.

“While the series generally remain above the notional 50-mark that is consistent with increasing demand for manufactured goods exports, order books in some countries — notably Germany, China, and the US — are no longer growing as quickly as they were a year ago.”

Given the new orders subindex tends to lead shifts in FTKs, IATA says the signs currently points to further slowdown in the months ahead.

“Having risen at a double-digit annualised rate between late-2016 and mid-2017, industry-wide FTKs have now trended upwards at an annualized pace of just 3% since September,” it says.

“Unless the trend accelerates over the coming months, the year-on-year FTK growth rate is set to fall back below its five-year average of 5% in May.”

Between January and February, FTKs grew by 7.3% compared to the same period a year earlier.

While growth of such magnitude is nothing to be alarmed about, especially after the strong recovery seen in recent years, it’s yet another example of the risks posed by a trade spat escalating between the US and China.

Such is their sheer size, and therefore importance to the global economy, any trade war between these nations could easily disrupt global trade activity, and with it broader economic activity.

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