An insightful observation made today is obsolete tomorrow. These days, even the most in-depth study of global economic trends seems to possess an alarmingly short sell-by date.
Take the DHL Global Connectedness Index, a detailed analysis of the progress of globalization. The third edition was released less than a year ago, containing data up to the end of 2013. Now, co-author Pankaj Ghemawat is suggesting that the report might already have been out of date when it came out.
“The world is moving so quickly that the notion of relying on data a year or two out of date probably seems less adequate than it used to,” Ghemawat told the Supply Chain Insights Global Summit in Scottsdale, Ariz., earlier this month.
Ghemawat holds the dual appointments of professor of global management and director of the Center for the Globalization of Education and Management at New York University’s Stern School of Business, and Anselmo Rubiralta Professor of Global Strategy at IESE Business School in Madrid, Spain. For the last nine months, he’s been trying to improve the “shutter speed” on the results of the DHL study, with a focus on two main areas: trade and capital.
To get more current results, Ghemawat is deploying two indices. The first is called QUIC, the Quarterly Updated International Connectedness Index, which examines trade in goods and services as well as capital flows on a shorter-term basis. And what that index shows might come as a surprise to some.
A look at the period from 2005 through the first quarter of 2015 shows that globalization “is not growing by leaps and bounds,” Ghemawat said. Measured as a percentage of world GDP, it was only 5-7 percent higher at the beginning of this year than a decade ago. In other words, trade has yet fully to recover from the global recession of 2007-08.
The overall picture from QUIC suggests that “we’re basically back to where we were before the crisis in trade and capital movement across borders,” Ghemawat said. Assumptions that trade was going to grow faster than GDP turned out to be wrong.
Ghemawat’s second new index, called FASTtrade, is conducted on a month-by-month basis. It’s designed to show what happened only a couple of months after the events in question took place.
The FASTtrade index shows an uptick in merchandise trade since June, but Ghemawat isn’t sure whether it’s the sign of a new trend or “just a blip in what continues to be a climate of considerable pressure on trade.” A couple more months of data might help to clear up the question.
In the meantime, developments around the world are serving to muddy the forecasting waters. One is recent economic setbacks in China, where a steamroller economy has finally begun to slow down, and efforts to promote domestic demand over export sales have failed to yield the desired results.
Between 2002 and 2013, the Chinese economy grew by an average of more than 10 percent per year. During that time, however, Chinese stock markets were virtually flat. It was only in 2014 that the markets experienced a huge run-up, stimulated in large part by the Chinese government.
More recently, the stock market has experienced a frightening plunge. At the same time, China has devalued the yuan, with the apparent goal of relying once more on exports to kick-start the economy. “In the last quarter,” Ghemawat said, “we’ve seen a reversal of two-thirds of the gains achieved over the previous three years.”
So is China on the ropes? Ghemawat cautioned against drawing any hasty conclusions. “I don’t think that what happens in stock markets has a first-order impact on what we should be thinking about [with regard to] China as a competitor,” he said. The nation remains the world’s largest market in most product categories, and isn’t about to shed its status as an exporting powerhouse, notwithstanding the reshoring of some manufacturing to the western hemisphere.
“If you’re inclined to count China out on the basis of what’s happened over the last couple of months, that’s not a very robust attitude,” Ghemawat said.
The problem, he suggested, is that it’s getting increasingly difficult to nail down volatile economic trends. The world is changing too fast for that. That’s why predictions about 2025, popular though they might be, are so shaky.
“If I were asked in 2005, I would probably have done a pretty bad job of predicting the world in 2015,” Ghemawat said. Developments such as the rise of Facebook, Twitter, the iPhone and the 2008 bankruptcy of Lehman Brothers – prior to that, the nation’s fourth-largest investment bank – were entirely unseen.
None of which stopped Ghemawat from making his own predictions for the next ten years – with the caveat that they’re likely to be well off the mark. Supply chains, he said, will be become both more local and more global – the first due to technological innovations such as 3D printing, automation and the growing use of robots in factories and warehouses, and the second because of digitization, leading to new types of media, the growth of the cloud, and the Internet of Things.
As for trends in trade, Ghemawat expects emerging economies to play a greater role, with supply lines growing longer to accommodate them. “All of the absolute growth in world merchandise trade since the crisis has involved an emerging economy at one or both ends of the transaction.”
But who’s to say that trend will continue? We can barely keep pace with what’s happening now, let alone see ten years into the future. To get a true picture of current events in the fast-changing global economy, we might need to shorten our telescopes.
Timely, incisive articles delivered directly to your inbox.