World Trade Forecast To See Rare Decline
MICHELE NORRIS, host:
From NPR News, this is All Things Considered. I'm Michele Norris.
ROBERT SIEGEL, host:
And I'm Robert Siegel. The world economy runs on oil. So here's a sign that the global economy is in trouble. The International Energy Agency said today that this year, the world's oil consumption will shrink. It's the first time that's happened in 25 years, as NPR's John Ydstie reports.
JOHN YDSTIE: For better or worse, the consumption of oil and economic growth have been two sides of the same coin for almost a century. And this week, the news of shrinking oil demand comes just as the World Bank predicts a decline in world trade next year for the first time since 1983.
Mr. DAVID MARTIN (Senior Analyst, International Energy Agency): And economic activity is the major driver of oil demand.
YDSTIE: That's David Martin, a senior analyst at the International Energy Agency in Paris.
Mr. MARTIN: So it's not surprising that the weaker economic activity and, indeed, the weaker economic outlook that we're seeing now is feeding through into the low demand forecast.
YDSTIE: Today's IEA report does predict demand for oil will rebound next year. But Martin has his doubts. Part of the reason is that tanking economies in the U.S. in Europe are having a larger-than- expected effect on growth in emerging economies, especially China. And many analysts had thought China might remain an engine of economic growth that would see the world through this crisis.
Mr. NICHOLAS LARDY (China Specialist, Peterson Institute for International Economics): I was always skeptical that China was going to be able to save the global economy.
YDSTIE: Nicholas Lardy is a China specialist at the Peterson Institute for International Economics.
Mr. LARDY: It has become highly dependent on the growth of exports over recent years to sustain its own economic growth. So it was fairly clear with the United States, Europe, and Japan all going into simultaneous recessions that China's export market was going to weaken dramatically and slow their economy, and that's what we're seeing now.
YDSTIE: China announced yesterday that its exports dropped 2.2 percent in November. But in a more ominous sign for the global economy, it imported 18 percent less from its trading partners. That means China isn't adding anything to growth in the rest of the world.
The drop in Chinese imports was a factor in the unexpected increase in the U.S. trade deficit announced today. U.S. exports which had been a growth sector for the U.S. economy, dropped to their lowest levels in seven months in October, as foreign consumers bought fewer U.S. goods, including aircraft. That's a bad sign for Boeing, says Nicholas Lardy.
Mr. LARDY: The Chinese government has already told its major commercial airlines to reduce their orders, even cancel or postpone orders that they've already placed.
YDSTIE: China's slowdown has also been a blow to the struggling U.S. auto companies, especially General Motors, which builds a lot of cars there.
Mr. LARDY: Their China operations have been a huge contributor to the bottom line of the company, and the car market has slowed significantly in China, not as much as in the U.S., but it is slowing down.
YDSTIE: Like the United States, China, which is the world's fourth largest economy, has announced a huge stimulus program and cut interest rates to try to spark growth. That's good, says Nicholas Lardy. But the countries the world need to avoid, he says, are protectionist policies that curb trade - the kind that made the 1930s downturn, the Great Depression. John Ydstie, NPR News, Washington.