Global recovery, output and trade trends

[The first of a five-part series titled "Post-graduation globalisation trends and challenges for Bangladesh"]

The graduation of Bangladesh from the list of Least Developed Countries (LDC) is unquestionably one of the greatest national achievements of the country. It is an international recognition of substantial progress made by this country over past few decades. The graduation is a giant step towards Bangladesh's deeper economic integration with the global economy.

But, when seen from the context of the current global environment, this accomplishment could not have come at a more inconvenient time. The global economy has suffered from a series of unfavourable events throughout the last decade. Once unanimously accepted norms of international trade regime are facing fundamental questions regarding impact on resources and welfare distribution. As a result, a few ominous themes have appeared on global centre stage including slow trade and faltering recovery, rise of economic protectionism, uncertain fate of multilateral trading system, and the potential impacts of automation on employment in the upcoming industrial revolution.

Even more than a decade after the financial crisis, the world economy is still struggling to return to its pre-crisis era growth trajectory. Global trade has been on the rise since the inception of World Trade Organisation (WTO), and its successful early negotiations for trade liberalisation. Withstanding cyclical recessionary impacts, global trade saw a steady average expansion of above 6.0 per cent per year between 1990 and 2008. This growth is even higher if we consider it from 1980 (about 6.5 per cent annually). But the scenario has changed drastically since the 2007-2008 global financial crisis (GFC). The average annual trade volume growth for 2012-16 has been 2.9 per cent, which is less than half the comparable growth achieved during the 1990s and 2000-08. If International Monetary Fund (IMF) projections turn out to be correct, 2012-21 would be the slowest decade of trade expansion since World War II.

The magnitude of this slowdown is somewhat hidden underneath, when the data on 'real' or 'volume' growth are used. Measured in current US dollar terms (shown in Figure 1), world exports of goods and services contracted by an astounding $2.8 trillion in 2015 (from 2014) and then again fell by about $500 billion in 2016 (from 2015). That is, in value terms, global exports of goods and services in 2015 declined by almost 11 per cent followed by another 3.5 per cent drop in 2016. As a result, global exports in 2016 were just roughly around the same level as in 2008. The situation has slightly improved in 2017 and 2018. Despite the much appreciated tailwind during a difficult time, the trend of slow growth persists strongly across the globe.

The rate of economic recovery has been largely uneven. Figure 2 shows the rate of average annual growth of real gross domestic product (GDP) since the crisis for a few selected economies. The rate of GDP expansion appears to have peaked in some major economies and growth has become less synchronised. After decades of fast growth, China has started showing signs of sluggishness with lower than 7.0 per cent GDP growth since 2015. Other large developing economies including Brazil, Mexico and Turkey have started to slow down. Developed economies have been the prime victims of the financial crisis and the recession that followed. Although USA has indicated stronger recovery (more than 2.5 per cent growth rate) in last couple of years, other advanced economies are far from it. Organisation for Economic Co-operation and Development (OECD) countries including Japan, Canada, Australia, United Kingdom (UK) and the European Union (EU) are growing at lower than 2.0 per cent rate per year. Overall, the global economy has increased at the rate of only 2.47 per cent between 2008 and 2018.

This trend of weak global trade expansion has adverse effects on LDCs as well. A longstanding international development objective has been securing stronger participation of the poorest and the most vulnerable countries (including the LDCs) in world trade. Although some decent progress was made regarding this during the 2000s, consequences in the aftermath of the 2008 financial crisis have reversed the trend. During 2000-2008, LDC exports grew almost five-fold, from U$ 43 billion to about U$ 200 billion. But in 2015, LDC exports stood just about the same as in 2008, only at US$201 billion. Moreover, export-to-GDP ratios of LDCs have been on average about 25 per cent since 2008, substantially below the developing country average of about 35 per cent.

Even during these critical periods of global trade, Bangladesh has maintained a stellar performance to secure growth in merchandised exports. In fact, Bangladesh became the best performing LDC in terms export by a distant margin. During the 1980s, Bangladeshi merchandise exports grew by $0.50 billion. In the following decades, that expanded rapidly: by $3.4 billion in the 1990s, followed by another $10 billion in the 2000s; and then a staggering $20 billion between 2010 and 2018, when the total exports crossed $36.6 billion mark. Bangladesh managed to attain a radical structural shift in exports, moving towards manufacturing exports (readymade garments) from traditional agricultural goods (jute, tea, fish etc.). This is something that most countries from sub-Saharan Africa and Latin America have been unable to do despite having more favourable foothold in the race and better starting positions. Between 1990 and 2016 while world merchandise exports grew at a compound annual average rate of 5.80 per cent, Bangladesh managed to grow twice as fast. Since 1990, Bangladesh has seen a four-fold rise in its share in world exports in comparison with 1.75 times achieved by LDCs in general (Figures 3 and 4).

Despite these improvements, Bangladesh is not immune to the existing trends of the global market. Especially, uneven expansion of the global economy has strong implications for the local exporters. The developed economies are the most prominent export destinations of Bangladesh. Their inertia in attaining full-speed recovery is costing export prospects of local manufacturers. Primarily, weakened economic progress of the European Union, Canada, Japan and Australia resulted to weaker aggregate demand in those markets. If significant unemployment or underemployment persists in those countries, consumers spending will fall. Even though Bangladesh's export performance remained impressively resilient and increased in the midst of all the turmoil, the country cannot materialise its full potential with a slowed-down global economy.

Another important consequence of the slow global economy and international trade is the potential impact on achieving sustainable development goals (SDGs). The 2030 Agenda for SDG provides an elaborate role - both direct as well as cross-cutting - for international trade in achieving many specific goals (SDGs) and targets. Trade appears directly under seven goals concerning hunger, health and wellbeing, employment, infrastructure, inequality, conservative use of oceans, and strengthening partnerships. Compared to MDGs, the SDGs go further in clearly identifying the 'means of implementation', where trade has been given a prominent role. The ability of trade at creating wealth through value addition and then magnifying it through the value chains makes it an enormously powerful component in pursuit of attaining inclusive growth.

As we already know, LDCs suffer from structural capacity and other constraints which restrict them from participating in meaningful value addition. International trade offers them an opportunity to attain inclusive and sustainable development in the LDCs. As LDCs are increasingly integrated into the global value chains, their overall contribution in trade increases. This allows them to have access to crucial foreign exchange and capital stock for future investments.

According to the World Investment Report 2014 of United Nations Conference on Trade and Development (UNCTAD), developing and least developed economies face an annual investment gap of $2.5 trillion per year in meeting the SDGs. It is high time the global community considered actions that will revive global trade flows and enhance the participation of LDCs including Bangladesh at improving the situation.

Dr. Shamsul Alam is Member (Senior Secretary), General Economics Division, Bangladesh Planning Commission.

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