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InternationalTradeCHAPTER7Theyears2008and2009weretumultuousonesforglobaltrade.Thesimmeringsub-primecrisisintheUSin2007whichtriggeredtheglobalfinancialcrisisinSeptember2008spreaditstentaclesinfull,leadingtoafullblownglobalrecessionresultinginunprecedentedfallinglobaltrade.Worldtradevolume(goodsandservices)grewbyonly2.8percentin2008comparedto7.3percentin2007,withtradegrowthtumblingdownmonthaftermonthfromSeptember2008onwards.Whilethefallseemstohavebeenstalledwiththerecentrecovery,worldtradecontinuestobevulnerablegiventhenatureoftherecovery.WORLDTRADE7.2Thedeepeningworldrecessionhadprofoundimpactonworldtrade.TheUS$16trillionglobaltradeof2008collapsed,reachingUS$5.8trillioninthefirsthalfof2009comparedtoUS$8.2trillioninthecorrespondingperiodof2008.Asaresult,growthofworldoutputandtradevolumeofgoodsandservicesfellto(-)0.8and(-)12.3percentrespectivelyin2009accordingtotheInternationalMonetaryFund’s(IMF)WorldEconomicOutlook(WEO)January2010.TheWorldTradeorganization(WTO)inMarch2009forecasta9percentdeclineinglobaltradefor2009,thelargestinover60years.Thedeclinewasmoremarkedinthecaseofadvancedeconomies(Table7.1)7.3TheWorldBank’sGlobalEconomicProspects,2010,estimatesworldrealGDPgrowthandworldtradevolumetofallby(-)2.2percentand(-)14.4percentrespectivelyin2009.AspertheWorldBank,thedollarvalueofworldtradeplummeted31percentbetweenAugust2008anditslowpointinMarch2009.AfterdiscountingforfallingcommoditypricesTable7.1:Trendsingrowthintradevolumes(percentchange)Projections2008200920102011WorldTradeVolume(GoodsandServices)2.8(-)12.35.86.3ImportsAdvancedEconomies0.5(-)12.25.55.5EmergingandDevelopingEconomies8.9(-)13.56.57.7ExportsAdvancedEconomies1.8(-)12.15.95.6EmergingandDevelopingEconomies4.4(-)11.75.47.8Source:IMF:WEO,January2010146EconomicSurvey2009-10andexchangeratefluctuations,globaltradevolumesweredownby22percentbyMarch2009.7.4Thecrisisseemslargelytohavepeteredoutinthesecondhalfof2009andbeginningof2010withglobaltraderecoveringfromthetroughsandtheappearanceofgreenshootsandtheIMFevenprojectingabetter-than-expectedgrowthinworldtradevolumeof5.8percentand6.3percentfor2010and2011respectively,whichisalsoareflectionofthehigher-than-expectedworldoutputgrowthprojectionsof3.9percentand4.3percentin2010and2011respectively.Thoughwearestillnotoutofthewoods,thereisagreaterdegreeofconfidence,particularlyincountrieswithstrongfundamentalslikeIndiaandChinawhichhaveweatheredthecrisiswithgreatdexterityandspearheadedtherecovery.7.5Examinationofthemonth-wiseexportsandimportsfortheworld,IndiaandsomemajortradingpartnersofIndiafrom2008onwards[Figures7.1(AtoH)]indicatesarecoveryintradewithexportgrowthbecomingpositiveinNovember2009overNovember2008intheEU(11.4percent),HongKong(1.3percent),India(18.2percent),Japan(1.5percent)andSingapore(13.3percent)andremainingmarginallynegativeintheUSA(-2.5percent)andChina(-1.2percent).PickupinimportgrowthrateswasledbyChina(26.7percent),followedbyHongKong(6.5percent),theEU(5.2percent)andSingapore(4.4percent).ImportgrowthalsobecamelessnegativeinthecaseoftheUS(-3.8percent),India(-2.6percent)andJapan(-9.9percent).7.6Asobservedinthepreviouschapter,whiletheglobalrecessionseemstobelifting,anoteofcautionisneededasrecoveryoftradeisstillvulnerableandfragilegiventhefactthatitismainlyGovernmentsupportandpolicydrivenandsomepolicieslikethe“cashforclunkers”schemeintheUSandsimilarschemesfortheautomobilesectorinothercountriescouldhavesimplybroughtforwardthedemand.Besides,theturnaroundintradegrowthislargelyduetothelowerbaseeffectofthelastyear(2008)whichwasinfactalostyearonthetradefrontastheprogressinexportsectorofearlieryearswasmercilesslyfritteredawaybytheonslaughtoftheglobalrecession.Thisisevidentifweseetheactualexportsandimportsinthepre-recessionmonthsalongwiththoseinthecorrespondingrecession/post-recessionmonths.ItisamatterofconcernthatexceptforIndiainthecaseofexportsandIndiaandChinainthecaseofimports,fortheworldandallothercountriesconsideredhere,theactualmonthlyexports/importsin2007werehigherthanthecorrespondingmonthlyexports/importsin2009inalmostallthemonths.Theconcernismoreinthecaseofimportswithmonthlyimportsin2007beingrelativelyhigherthanthecorrespondingmonthlyimportsformostofthetradingpartnersofIndiain2009.Thegrowthratesofexports/importsin2009over2007giveninFigures7.1(AtoH)alsoclearlyshowsthatwhilethefreefallofglobaltradehasbeenstopped,realgrowthfrompre-crisislevelsisyettohappen.TRADECREDITDURINGWORLDRECESSIONImpactofthecrisisontradecredit7.7Theglobaleconomiccrisisalsoimpactedtradecredit.Anumberofbanks,globalbuyersandfirmssurveyedindependentlybytheWorldBank,InternationalMonetaryFund(IMF)andBankersAssociationforFinanceandTrade(BAFT),havefeltthatlackoftradecreditandotherformsoffinance,suchasworkingcapitalandpre-exportfinancing,hasaffectedgrowthinworldtrade.Inaddition,thecostsoftradecredithavesubstantiallygoneupandarehigherthantheywereinthepre-crisisperiod,raisingthechallengeofaffordabilityofcreditforexporters.Higherfundingcostsandincreasedriskcontinuetoputupwardpressureonthepriceoftradecredit.In2008,asthefinancialcrisisintensified