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Trade effects and goods and services rotation

Trade effects and goods and services rotation

Mayıs 9, 2022 12:15
Trade effects and goods and services rotation



Covid and supply problems… The disruptions experienced with Covid, the subsequent supply crisis and the subsequent loss of effect of the epidemic cause the difference between the trade of goods and services to fluctuate. While the demand for services and activity are negatively affected during the periods when the pandemic is at its deepest and details such as periodic Delta and Omicron are dominant and paychecks are given to individuals, the recovery from the pandemic, in addition to this, is now causing this balance to shift from goods to services again.


Deceleration in production, net exports… Demand for goods may also be adversely affected in the future due to disruptions in production. In addition to the supply problems created by the last Russian war, China’s new supply interruption that may affect the production line with Covid measures includes negative risks in terms of components such as consumption and imports. In this equation, although the US has the potential to be affected by these dynamics on the side of industrial and capital goods production, the main problem will be in the supply of goods from countries on the other side of the chain, especially China. While China is at a slowing point in the global economy, it will be able to spread the effect through the risk of contamination. We monitor efforts to balance this situation in terms of currency or interest rates, but developments on the last axis show that growth will slow down significantly.


The 1Q22 US GDP report showed net exports fell 3.2 percentage points from headline growth during the quarter. Due to flexible demand and supply bottlenecks, trade flows were especially volatile from month to month. Strong US demand supported rapid import growth. The result is that net exports appear to be a barrier to headline growth.


Conclusion? It will mark a period of widening trade deficits as US consumers continue to spend more on services. It means it will pass. We are also seeing an ongoing and intensifying negative impact on Chinese growth from widespread COVID-related quarantines. Although 1Q22 GDP is more resilient than expected, it does not fully reflect the effects of the recent lockdown. For this reason, while it is necessary to approach the growth in China with much more caution, the axis created by the goods deficits shows that the rotation in the US economy focuses on service production and demand.

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