Global trade growth to slow this year
London, May 17, 2012
Global trade growth will slow this year and volumes are unlikely to regain their pre-crisis trend for at least another four years, according to a survey released on Thursday.
The International Chamber of Commerce said it expected trade, the life blood of the global economy, to expand by 5.2 percent this year and by 7.2 percent in 2013.
Growth for all of 2011 was 6.6 percent, driven by emerging markets, but slowed down towards the end of the year. Euro zone export volumes fell 5.9 percent in 2011.
After the collapse of Lehman Brothers in September 2008, global trade suffered the steepest slump since the Great Depression of the 1930s as banks pulled in their horns. These financial problems have diminished but have not disappeared, the ICC warned.
'Left unattended, they can still cause irreparable damage to the trade finance industry,' the report, based on a survey of 229 banks in 110 countries, said.
Chief among bankers' concerns is the scarcity of capital.
Many European banks that were traditionally big suppliers of trade finance have quit the market or cut back sharply because of funding constraints and pressure to deleverage.
The ICC has lobbied in vain to persuade international bank regulators to remove trade finance - generally a low-risk business - from the overall leverage ratio that will limit banks' total assets to 33 times their core equity capital under new Basel III capital requirements.
Trade finance departments were 'competing internally for each unit of the bank's scarce capital', the ICC said. Fifteen percent of respondents reduced their trade credit lines to corporate customers last year compare with 12 percent in 2011.
This pullback, allied to a shortage of liquidity and what the ICC called a disproportionate aversion to risk, was continuing to drive up interest rates on trade finance in a number of countries, especially in emerging markets.
Daniel Cotti, head of global trade at JP Morgan Chase, said regulators, politicians and market players needed to realise that regulation would increase the cost of trade finance.
'Providers are operating in what is arguably the most challenging time in trade finance history,' Cotti said in a contribution to the ICC report.
Despite the tough environment, the majority of respondents to the ICC survey said trade volumes were higher or largely unchanged in 2011; banks reporting an increase in volume outnumbered those witnessing a decrease by 2:1.
Given heightened risk aversion, the survey found growing demand for documentary credits to finance trade. These instruments substantially reduce risks for exporters and importers compared with a 'buy now, pay later' open account transaction, whereby an exporter ships and delivers goods before payment is due, usually in 30 to 90 days.
Open account trade made up an estimated 80-85 percent of global volumes before the financial crisis, but the share is thought to have shrunk since as exporters sought more secure methods of settlement. - Reuters