Slowdown ahead
Global trade had a strong first quarter, but it is likely to slow for the rest of the year as signs multiply that economic growth in many parts of the world is slipping, says Capital Economics senior economist Andrew Kenningham.
Still, overall global trade expansion is likely to be well above its historical average again this year, he believes.
"Even if trade slows in the coming months, we are now increasing our forecast for world trade to 10 per cent for the year as a whole. This compares with an average of 6.5 per cent over the past 20 years."
Trade has continued to grow slightly more rapidly than industrial output. In the first three months of the year, trade was up 3.6 per cent, compared with the final quarter of 2010.
The contrast between emerging and advanced economies is striking. In March, the volume of exports from emerging economies was one-fifth higher than it had been in January, 2008, whereas exports from advanced economies were still significantly lower, according to Mr. Kenningham's analysis.
Asia continues to lead the pack with the highest growth rate. Total export volume was up 9.5 per cent, quarter over quarter.
The new frugality
After powering the economic recovery over the past two years, Canadian consumers are taking a breather, with high debt levels and rising fuel prices contributing to the pullback.
Retail sales volumes fell in March from a year earlier for the first time since the early days of the recovery, but part of that drop was due to cold weather and a late Easter, according to BMO Nesbitt Burns senior economist Sal Guatieri.
For the fourth straight month, discretionary spending on sports and hobbies has slipped.
Banks are feeling the squeeze on margins as well, as consumers put a lid on borrowing, particularly in credit-card use. Not only have transaction volumes been dropping, but the revolving balances that customers carry are lower.
Clearly, consumers are heeding warnings that high debt loads could turn into major headaches as interest rates rise in the future.
This "new frugality bodes well for long-term sustainable growth, provided it's not taken to the extreme, and will also weigh toward keeping the [Bank of Canada]on the sidelines," Mr. Guatieri writes in a recent note.
Banking on a correction
It's easy to conclude that the U.S. financial sector has staged a triumphant return to health. After all, Citigroup stock is trading north of $40 (U.S.) a share after being close to a dollar in 2008. And the company's CEO is being rewarded with a big bonus package for his success.
But Don Coxe of Coxe Advisors LP has his doubts. As he points out in a new report, the shares of most U.S. banks and other financial firms have continued to slide despite rescue efforts by Washington that have been nothing short of heroic.
"Never has so much money been lavished for so long [on]so few by any government," Mr. Coxe writes. For instance, U.S. banks have been able for nearly three years now to borrow money from the Federal Reserve at near-zero cost.
Meanwhile, those same financial institutions have been buying back their own shares in massive amounts. And the yield curve - the difference between short- and long-term rates - remains steep, a configuration that is usually good news for banks, which make their profits by borrowing short and lending long.
Mr. Coxe believes that the continued underperformance by U.S. financial stocks spells trouble for the broader U.S. market. "The long overdue correction in equities has begun," he writes. His No. 1 recommendation? Reduce exposure to stocks, particularly to non-Canadian financial stocks.
Bertrand Marotte
Ian McGugan