Trade puzzle: On exports and global trade

The uptick in goods exports is heartening, but difficult to sustain 

March 19, 2024 12:30 am | Updated 09:24 am IST

Towards the end of a tumultuous trading year, India’s goods exports jumped 11.9% in February, marking the healthiest uptick in 20 months. The $41.4 billion tally is the highest in 11 months, and only the third occasion in two years that the $40 billion mark has been breached. It is remarkable that this spurt, significantly higher than the average export tally of $35.4 billion in the first ten months of this year, comes amid persistent concerns about disruptions in the Red Sea and the drought-hit Panama Canal that have throttled vital trading routes and spiked the time and cost of moving consignments. While the last two months’ trade numbers suggest that India is yet to feel the full impact of the logistics challenges for servicing key markets in Europe and the Americas, it may be too simplistic a conclusion. It is plausible that some of February’s numbers may reflect shipments that were probably despatched earlier and reached their destinations only last month using longer routes. Economists believe a combination of backlogged orders attaining fruition and demand improvements may be at work. However, with interest rates still high, global demand conditions are yet to demonstrate the rebound the World Trade Organization (WTO) had hoped for in 2024.

The WTO expects global trade to rise 3.3% this year after a 0.8% crawl in 2023. But by its own reckoning, using a gauge called the Goods Trade Barometer, things are yet to perk up. As of March 8, the barometer, where a reading of over 100 reflects above-trend exim volumes, had a reading of just 100.6. The export orders parameter was marginally higher at 101.7 but container shipping slipped to 98.6. Some modest gains in the first quarter of 2024 may be seen owing to the base effects of a weak 2023, but any such gains could be easily derailed by regional conflicts and geopolitical tensions, the WTO has warned. Policymakers may have turned upbeat about surpassing last year’s record overall exports (merchandise and services combined), but must not lose sight of the lingering risks and challenges, including the impact of freight hikes on margins. While electronics goods exports have been an outlier in 2023-24’s weak exports narrative (-3.5% so far), the WTO’s latest barometer reading for electronic components trade has plummeted to 95.6. This is visible in February’s numbers as both electronics imports and exports grew just fractionally over 1%. For now, the trade deficit should not be a concern, despite imports jumping at a 17-month high pace last month, led by a spike in inflows of increasingly pricey gold. Finding better ways to support exporters, especially in adversely hit employment-intensive sectors such as textiles, and gems and jewellery, remains critical.

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