Many analysts have been expressing concerns that protectionist sentiments may impact global trade, and a report from National Bank of Canada seems to validate those concerns.
According to a recent National Bank article titled World: Poor sales lead to inventory accumulation in emerging markets
, global trade volumes shrank for a second consecutive quarter in Q2 as a result of weak demand. At the same time, industrial production grew, with increases in output from emerging markets more than compensating for declines in advanced economies.
“[B]ecause sales remained soft, much of that extra output went into inventories… the ratio of industrial production to exports in emerging economies surged to its highest level since the 2009 global recession,” writes Krishen Rangasamy, a senior economist for National Bank.
The piece shows in a chart – which uses data taken from the CPB’s World Trade Monitor report released in June – that the increased production and weak demand for exports have led to an inventory glut, one that emerging markets are suffering from more than advanced economies.
“That does not bode well for production and hence economic growth in emerging markets in the second half of the year, particularly if exports remain weak,” the piece says.
The CPB’s June World Trade Monitor breaks down data from emerging economies into four regions: emerging Asia, Central and Eastern Europe, Latin America, and Africa and the Middle East. However, the chart used in the NBC piece does not indicate which of those emerging market regions actually contribute to the reported overall inventory increase.
What emerging markets should you be looking to?
Brexit, protectionism projected to hurt global economies