Press Release - Trade as an engine of growth: Prospects and lessons for Europe - Speech by Benoît Cœuré, Member of the Executive Board of the ECB, NBRM High Level International Conference on Monetary Policy and Asset Management, Skopje, 16 February 2018
I thank you for inviting me to speak here in Skopje today[1]. I would like to take this opportunity to discuss an issue which I believe is key for the economic future of Europe and particularly relevant here, in the Western Balkans: the prospects for trade as an engine of growth.
For several years now, global trade growth has puzzled many observers. While global trade grew at about twice the rate of GDP before the crisis, it has slowed measurably since then and has often grown at the same rate as, or even below, that of global output. However, in 2017, world import growth once again outpaced world GDP growth. The euro area is benefiting from this recovery, with export growth the highest in many years.
In my remarks this morning, I will argue that the rebound in trade mainly reflects cyclical factors. Accommodative monetary policies worldwide have succeeded in boosting growth and investment and, with them, global imports. Structural headwinds remain, however. Maturing global value chains, geographical shifts in trade and an accelerating push towards more automation make it less likely that trade can again expand at the pace observed during the pre-crisis boom.
To the extent that trade helps lift growth, policymakers have a role to play in providing an environment that is conducive to trade. At the same time, they need to ensure that appropriate systems are in place to support workers affected by secular shifts in both trade flows and labour demand.
Rebound in world trade
Let me start with a few facts and charts.
Last year, global imports expanded by 5%, the strongest growth in seven years. On the left-hand side of my first slide you can see that the rebound in global trade was broad-based, with both emerging and advanced economies contributing in roughly equal proportions. On the right-hand side you can see that this by and large reflects the fast broadening of the global economic expansion. At the end of last year, 75% of the economies worldwide experienced growth above their three-year averages. In 2016, this share was below 30%. So, the global economy is in a much more robust state today than it was just a few years ago.
The breakdown of extra-euro area exports also shows that the current synchronous expansion is fertile ground for a strong rebound in trade. You can see this on the left-hand side of my next slide. By the end of last year, euro area exporters had expanded their business with virtually all of our main trading partners.
Growing demand from China, and emerging Asia more generally, as well as recovering demand from commodity exporters are once more contributing to, rather than subtracting from, export growth. One exception to this benign picture is the United Kingdom, where Brexit repercussions might already be showing through in the data.
Trade has also gained momentum within the euro area. You can see this on the right-hand side. Although intra-euro area export growth is currently somewhat weaker than extra-area growth, we can see that exports are today contributing more evenly to growth across euro area countries. It is no longer only a few Member States that are benefitting from a booming global economy.
In particular, structural reforms and internal devaluation in formerly stressed economies, together with a protracted period of weak domestic demand during the crisis years, have prompted more firms in these economies to improve their competitiveness and thereby profit from a rise in foreign demand, both inside and outside the currency union.
This is perhaps best illustrated by the share of exports in GDP on the left-hand side of my next slide. Last year, compared with the period 2000 to 2007, this share rose strongly in Ireland and Slovenia, while Portugal, Greece and Cyprus also managed double-digit gains. This supported the economic recovery and helped to reduce unemployment.
A natural side effect of these changes was a notable widening of the euro area’s current account surplus. You can see this on the right-hand side. Almost all Member States that entered the financial crisis with large current account deficits are today reporting current account surpluses. Of the euro area’s 19 Member States, 13 have current account surpluses.
But the chart also illustrates clearly that the rebalancing has remained limited to formerly stressed economies. Up until recently, current account surpluses have continued to rise in Germany and in the Netherlands, the two export powerhouses in the euro area. While these surpluses undoubtedly reflect strong underlying fundamentals in terms of competitiveness, they also reflect an imbalance between domestic savings and investment. Higher domestic investment would therefore be a constructive way to address large current account surpluses and, at the same time, to prepare for future challenges.
Now, does the current trade recovery bode well for the future? What are the prospects for global and euro area trade? Will we return to an environment where trade growth persistently outpaces GDP growth?
In answering these questions, I will distinguish between cyclical and structural factors.
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