Global Outlook Brightens as U.S. Consumer Imports Reach Pre-Pandemic Levels

Date: Wednesday, October 7, 2020
Source: The Wall Street Journal

The outlook for the global economy has improved amid evidence that trade picked up faster than expected from coronavirus-triggered disruptions, with U.S. imports of consumer goods reaching pre-pandemic levels at the end of the summer.

International Monetary Fund Managing Director Kristalina Georgieva, in a Tuesday speech ahead of annual IMF and World Bank meetings next week, said the global economy won’t contract this year as much as the IMF projected in June.

“The picture today is less dire,” Ms. Georgieva said in London. “We now estimate that developments in the second and third quarters were somewhat better than expected, allowing for a small upward revision to our global forecast for 2020.”

The IMF’s updated forecast will be released on Oct. 13. In June, it called for a 4.9% fall in global gross domestic product.

One factor in the improved outlook is a snapback in global trade. The U.S. posted its largest monthly trade deficit in more than a decade in August as imports of consumer goods set a new monthly record, the Commerce Department said Tuesday. The widening U.S. trade gap—at $67.1 billion—coincided with increased spending by U.S. households on goods while exports of services and manufacturing products stalled.

The resilience of global commerce is lifting major economies such as China and Germany and easing fears that the coronavirus pandemic could permanently rupture supply chains and send globalization into retreat.

Countries around the world are experiencing a two-speed rebound: Manufacturing and trade are returning rapidly toward precrisis levels, as households continue to buy imported goods, often supported by government cash. But the recovery has been sluggish for local service providers such as restaurants and movie theaters, which remain hampered by safety measures aimed at containing the virus.

The World Trade Organization in forecasts released Tuesday said global trade volumes will fall less sharply this year than it had previously expected, following strong rebounds in June and July.

The WTO now expects flows of goods across borders to fall by 9.2% in 2020, less than the 12.9% drop it had projected in April under its “optimistic scenario.” Still, the WTO doesn’t see trade volumes returning to pre-pandemic levels in 2021, forecasting a rebound of just 7.2%.

Considering the severity of the economic downturn, the Geneva-based organization said trade flows have held up better this year than they did in the aftermath of the 2008-09 global financial crisis. It attributed that performance to the more-robust stimulus measures implemented by governments and central banks.

In the U.S., imports of consumer goods and food rose to all-time highs in August, Tuesday’s data showed. Economists say those imports were fueled by roughly $1 trillion of fiscal support that the federal government has pumped into U.S. households through enhanced unemployment insurance, stimulus checks and tax cuts, since March.

The result has been higher imports of furniture, clothes and pharmaceuticals. Imports of computers and semiconductors also rose in August and are up year-to-date, reflecting the shift toward remote work.

Federal Reserve Chairman Jerome Powell on Tuesday said the U.S. recovery would be “stronger and move faster” with additional government support for households and businesses. “The expansion is still far from complete,” Mr. Powell said. “Too little support would lead to a weak recovery, creating unnecessary hardship.”

China, whose factories were among the first to reopen from pandemic shutdowns, recorded 9.5% growth in outbound shipping in August compared with the previous year. China’s share of global-merchandise trade jumped to 17.2% in the second quarter of this year following the pandemic from 13.6% in the last quarter of 2019, according to Oxford Economics.

Economists say China’s exports have risen in part thanks to the country’s strength in manufacturing products that are crucial in fighting the coronavirus, including pharmaceutical chemicals and personal protective equipment.

But China is also running far behind schedule on its imports of U.S.-made goods under its phase-one trade deal with the U.S. The accord, signed in January, targeted purchases by China this year of $137 billion of specific U.S. goods. Through August, however, it had imported only $41 billion, economists at Wells Fargo said.

In the eurozone, where governments have rolled out sweeping furlough schemes aimed at protecting jobs, retail sales jumped by 3.7% year-over-year in August, reflecting a surge in online purchases and increased clothing sales, according to data published Monday. The region’s manufacturing output rose at the fastest pace for over 2½ years in September, according to business surveys published Monday.

However, eurozone service sector activity registered its worst performance since May. And while Germany recorded strong growth, supported by its large export-oriented manufacturing sector, the French and Spanish economies contracted, as a second wave of viral infections closed some local services.

European Central Bank President Christine Lagarde warned that Europe’s economic recovery remained “incomplete, uncertain and uneven,” and that output wouldn’t return to pre-Covid levels until the end of 2022.

Speaking in an interview ahead of The Wall Street Journal’s CEO Council, Ms. Lagarde said the ECB stands ready to scale up its monetary stimulus to support an economic recovery in Europe that looks “a little bit more shaky,” including by cutting a key interest rate further below zero.

U.S. trade data from sectors other than consumer-goods imports paint a mixed picture of the U.S. recovery.

Imports of industrial supplies fell in August from July and imports of capital goods and vehicles slowed, suggesting the swift rebound in economic activity that took place in the spring has started to level off.

Overall exports remained 13% below their level in August 2019, as slowing momentum in the global economy weighed on U.S. sales of capital goods and industrial supplies to other countries.

“The key issue at the moment is that imports have rebounded a lot faster than exports, which seems to be mainly driven by domestic manufacturing production taking a lot longer to come back online and then rebound to pre-pandemic levels,” said Andrew Hunter, senior U.S. economist at Capital Economics.

The overall trade deficit has been further exacerbated by a decline in the U.S.’s longstanding trade surplus in services, which fell to $16.8 billion—its lowest level in nine years—from $23.8 billion in August 2019.

While there were signs that the U.S.’s dominance in services was waning before the pandemic, much of the more-recent decline stems from Covid-19’s impact on international tourism, which has collapsed in recent months. So-called travel exports, which represent spending by foreigners in the U.S., were down 77% in August from a year earlier at $3.62 billion.

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