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Understanding the weakness in global trade - What is the new normal?

Bruno Cabrillac, Al-Haschimi, Alexander, Oxana Babecká Kucharčuková, Alessandro Borin, Matthieu Bussiere (), Rafael Cezar, Alexis Derviz (), Dimitra Dimitropoulou, Laurent Ferrara (), Martin Gächter (), Guillaume Gaulier (), Juhana Hukkinen, Mary Keeney (), David Lodge, Michele Mancini, Clément Marsilli (), Jaime Martinez-Martin (), Wojciech Mroczek, Jakub Muck, Elena Pavlova, Judit Rariga, Juozas Šalaševičius, Daniel Santabárbara, Frauke Skudelny (), Ulf Slopek, Walter Steingress (), Alex Tuckett, Neeltje Van Horen, Duncan van Limbergen, Laurent Walravens and Julia Wörz
Authors registered in the RePEc Author Service: Oxana Babecká-Kucharčuková and Julia Maria Woerz ()

No 178, Occasional Paper Series from European Central Bank

Abstract: Global trade has been exceptionally weak over the past four years. While global trade grew at approximately twice the rate of GDP prior to the Great Recession, the ratio of global trade to GDP growth has declined to about unity since 2012. This paper assesses to what extent the change in the relationship between global trade and global economic activity is a temporary phenomenon or constitutes a lasting change. It finds that global trade growth has been primarily dampened by two factors. First, compositional factors, including geographical shifts in economic activity and changes in the composition of aggregate demand, have weighed on the sensitivity of trade to economic activity. Second, structural developments, such as waning growth in global value chains, a rise in non-tariff protectionist measures and a declining marginal impact of financial deepening, are dampening the support from factors that boosted global trade in the past. Notwithstanding the particularly pronounced weakness in 2015 that is assessed to be mostly a temporary phenomenon owing to a number of country-specific adverse shocks, the upside potential for trade over the medium term appears to be limited. The JEL Classification: F10, F13, F14, F15

Keywords: frictions in global trade; global trade slowdown; global value chains; protectionism; trade elasticity (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-int
Date: 2016-09
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbops:2016178

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