Asian Trade has Collapsed: The Global Economy may be Next

Earlier this month, I reported on November data for Japan (here). I cited this (Japan: Sharpest drop in industrial output ever) report from Danske Bank written by Mr. Nielsen. He did an excellent job of describing the risks to the Japanese economy and predicted something on the order of a 5+ percent fall in Japanese fourth quarter GDP. I cited a couple of risks to this forecast but generally agreed with his assessment. We were so naïve.

This week we received December trade data from Japan. Real exports fell 9.8 percent adding to last month’s 14 percent decline. Real exports declined more than 40 percent at an annual rate in the fourth quarter. As I expected, real imports also fell in December, but only 2.4 percent. Over the quarter, real imports rose. This is bad news for Japan’s economy. Japan will be extremely lucky to achieve fourth quarter GDP growth greater than -10 percent.

And as I noted in my previous post, a fall in Japanese exports of this size, while bad for Japan, portends horrific things for the global economy. Declines were widespread, with large nominal falls to China (35.5 percent over 12 months), Europe (40 percent), Central and South America (19 percent), and North America (36 percent). But Japan was not the only Asian economy to experience a decline in fourth quarter trade volumes.

Take a look at the graph below. For this picture, I sum imports and exports in billions of U.S. dollars for all of the Asian economies. The data are nominal, which is of some concern, but the fourth quarter fall is not a price story (as shown by the real data for Japan, Singapore, and Taiwan). In the fourth quarter, the volume of Asian trade fell 13 percent (again, not at an annual rate). This fall is larger than during the Asian Financial Crisis.

As we began to learn this week, these trade numbers are already being reflected in GDP numbers. South Korean GDP fell by more than 20 percent (annual rate) and Singapore’s fell by 16 percent. I would be tempted to say that this is just an Asian problem (except it is not). The flash estimate of U.K. GDP came in at a shocking -5.93 percent.

We are going to see falls in GDP in the fourth and first quarters greater than at any other time in the post war era. I still don’t think we are headed for Depression, but I am beginning to think we will be able to see one from where we end up.