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World trade flows suffer as oil price plunges

By Chris Giles in London and Geoff Dyer in Beijing

Published: January 14 2009 02:00 | Last updated: January 14 2009 02:00

World trade flows are falling fast as the credit crisis bites and oil prices plummet, with official figures yesterday showing export and import declines in the US, China, UK and Canada.

The banking crisis hit consumer and business confidence last autumn, leading to higher levels of unsold stocks, some problems in securing trade credit insurance and falling investment across advanced economies, all of which reduced the demand for imports and the level of exports.

But the combination of economic pain and plummeting oil prices had a range of effects on countries' trading positions, depending on how much oil they import and the vulnerability of their exports.

The US trade deficit plunged almost 30 per cent to a five-year low of $40.4bn (€30.3bn, £27.3bn) in November as month-on-month imports fell 12 per cent, while exports declined 6 per cent. Imports of crude oil and other fuels plummeted as demand dropped.

Similarly in China, exports and imports fell for the second consecutive month in December and are expected to slip further in coming months.

The government said Chinese exports fell 2.8 per cent last month in dollar terms - following the surprising 2.2 per cent decline in November - while imports were down 21.3 per cent, reflecting lower commodity prices and slumping domestic demand. Measured in local currency, Chinese exports dropped 9 per cent last month.

The trade position of the UK, which is self-sufficient in oil, did not benefit as much as some from the tumbling prices. Its exports fell 3.7 per cent in November against the previous month. With sterling down by more than 20 per cent on a trade-weighted basis over the past year, the resulting rise in the trade deficit suggests Britain is particularly vulnerable to the credit crisis.

Allan Monks of JPMorgan said: "Despite the ongoing slide in sterling towards the end of last year, exports continued to fall sharply in November."

Canada saw its trade surplus fall 40 per cent in November as oil and commodity prices tumbled.

Declining surpluses in many oil-exporting countries will help to rebalance global demand. But China, Germany and Japan are large importers of oil and their

big trade surpluses could grow as commodity prices decline.

The Chinese trade surplus in December, for example, was $38.98bn, just short of the record $40.1bn in November. This will renew pressure on the government to take new measures to boost domestic demand, including strengthening its currency.

Such a move will come at a difficult time for Beijing as collapsing consumer demand in the US and Europe has exposed large overcapacity in parts of the Chinese -economy.

"The export situation will continue to deteriorate so there is still a long way to go in digesting the excess capacity," said Ha Jiming, an economist at China International Capital Corp in -Beijing.

Although economists believe Chinese exports could decline by as much as 20 per cent this year, some companies there expect to gain market share as their low costs will appeal to cash-strapped customers.

Copyright The Financial Times Limited 2009