Qatar National Bank (QNB) expects global trade to withstand major headwinds in 2025, noting that trade volumes will grow from 2.8 percent in 2024 to 3.2 percent next year, in the absence of a significant increase in protectionist measures and geopolitical turmoil, in addition to… Strong economic stimulus in China, and rounds of interest rate cuts in advanced economies.
Qatar National Bank explained in its weekly report that global trade has witnessed extraordinary fluctuations in recent years. After a sharp decline in trade volumes in 2020 as a result of the Corona (Covid-19) pandemic, a strong recovery occurred in 2021, with the pandemic receding and the reopening process beginning. the global economy gradually.
The report pointed out that the emergence of a challenging environment, amid rising interest rates, high inflation rates, and geopolitical instability, led to a sharp slowdown in business activity in 2022, and the situation was more disappointing in 2023, indicating an uncharacteristic contraction in real volumes. For trade only in 2009 in the wake of the global financial crisis, and in 2020 with the massive disruptions caused by the Covid pandemic.
Although some headwinds persist today, including a challenging geopolitical environment characterized by increasing protectionism and logistical disruptions, a moderate recovery is beginning to emerge in 2024, the report said.
He believed that this recovery would continue in 2025, although global trade growth would remain below the long-term average prevailing before the Corona pandemic.
The report attributed the aforementioned recovery to three main elements, the first of which is that the main leading indicators indicate an improvement in trade volumes, as investors’ expectations regarding the future profits of companies in the transportation sector are an indicator of global trade prospects.
In this context, the performance of the Dow Jones Transportation Index – an index consisting of stocks of airlines, trucking, marine transport, rail transport and delivery companies – usually indicates shifts that will occur in the dynamics of global exports. After this indicator reached its lowest level in mid-2024 on an annual basis, it returned to the positive range indicating trade expansion.
It is also useful to track the export performance of Asian economies that are highly integrated into the global economy, such as Japan, South Korea, Singapore, and Taiwan, which publish trade statistics early.
After the Dow Jones Index showed negative growth for most of last year, in line with the contraction in global trade, this measure began an upward trend and remains in the expansionary range, the report added. Overall, leading indicators suggest that trade will maintain its pace of recovery.
The second element that the report analyzed related to the Chinese government’s announcement of a package of strong measures to stimulate the economy, which contributed to improving the prospects for international trade in the medium term. During this year, concerns about the performance of the Chinese economy began to increase amid deflationary pressures, the real estate crisis, and negative momentum in investor sentiment. Economic growth forecasts for 2024 fluctuated between 4.5% and 4.9%, a range well below the 10-year average of 5.6%.
In a strong response, the Chinese authorities put in place a series of coordinated monetary, financial and tax measures to provide support to the country’s economy, which is considered the second largest economy in the world. We expect the comprehensive package of policy measures to boost economic growth in China and East Asia, generating further momentum in the most dynamic trading region on Earth. This would further support the acceleration of overall trade growth.
The third element on which the report was based was that rounds of interest rate cuts by major central banks gave an additional impetus to trade. Given the progress made in controlling inflation, the US Federal Reserve and the European Central Bank are embarking on a major monetary easing cycle. This cycle is expected to shift interest rates from the restrictive zone to accommodative levels by the end of 2025.
International trade is greatly influenced by credit and interest rates, due to their impact on investment by firms and on demand for durable goods by households, which are two major components of trade flows. Thus, a monetary easing cycle in advanced economies would add momentum to global trade growth.