IMF launches new indicator to monitor global trade uncertainty

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IMF launches new indicator to monitor global trade uncertainty

15 September 2019 06:22 PM
Edited by Sally Ismail

Direct : Increasing trade uncertainty is seen as a driving factor in the slowdown in economic growth around the world, amid a growing trade war between the world's two largest economies.

This description is part of the current edition of the IMF's Global Economic Prospects report, which describes the state of the global economy.

But how is trade uncertainty measured? How did it develop over time? Are changes in trade uncertainty limited to specific countries and regions of the world?

According to a new IMF index of trade uncertainty, it found that uncertainty on this scale is increasing not only in the US and China, where trade tensions are highest, but also in many other countries.

How to configure the new cursor

The World Trade Uncertainty Index has followed 143 countries since 1996.

To our knowledge, this is the first effort to create an index that monitors trade uncertainty for a wide range of developed and developing economies.

Trade-based indicators of uncertainty focus either on the United States (the commercial component of the economic policy uncertainty index of Scott Baker, Nicholas Bloom and Stephen Davis) or on the global economy as a whole (Black Rock Index) or on a group of 44 countries (indicators such as Sandy Halshwayo).

The new index is based on the Economist Research Unit's reports and follows a standard structure and treatment that helps alleviate concerns about accuracy, ideological bias and conformity.

Moreover, this is the only known source with a specific topical focus for coverage, ie economic and political developments.

These factors make the new index comparable across countries.

In order to compose the index, we add the number of times the word "uncertainty" has been mentioned in reports close to the trade-related word.

Specifically, for each country and quarterly, we look at the Economist Intelligence Unit's reports on the words "uncertain", "uncertainty" and "uncertainties".

The search for these words appears near the words "protectionism", "North American Free Trade Agreement", "definitions", "trade", "United Nations Conference on Trade and Development" and "World Trade Organization".

To make the WTU comparable across countries, we expand the calculation of the total number of words in each report.

The increase in the index indicates that trade uncertainty is rising and vice versa.

Growing global trade uncertainty

Globally, the trade policy uncertainty index is rising sharply, having held steady at low levels for nearly 20 years.

 

The index shows increasing uncertainty starting in the third quarter of 2018, coinciding with a series of heavily generalized tariff increases by the United States and China.

Global trade uncertainty eased after that in the last quarter of 2018, with officials in the United States and China announcing a deal to halt tariff escalation at the G20 meeting in December in Buenos Aires.

It rose dramatically again in the first quarter of 2019 following a sharp increase in US tariffs on goods imported from China on March 1.

We also found that increases in uncertainty foreshadow significant declines in GDP.

According to our estimates, the increase in trade uncertainty reported in the first quarter of 2019 could be sufficient to reduce global economic growth by up to 0.75 percent in total this year.

Increased trade uncertainty outside the US and China

Trade uncertainty has increased not only in the US and China but also in many countries around the world.

 

High levels of trade uncertainty have occurred in major US trading partners such as Canada, Mexico, Japan, major European economies and in many other geographically close states of Washington and Beijing.

However, the level of trade uncertainty varies significantly between regions and income groups.

The recent rise in the Western Hemisphere uncertainty index was further felt by Asia and the Pacific and Europe.

 

 

In contrast, trade uncertainty remains moderately low in the Middle East, Central Asia and Africa.

Developed economies are experiencing the highest trade uncertainty, followed by emerging markets, while increasing trade uncertainty remains at low levels on average within low-income economies.