World trade forecasts upgraded,but headwinds from Asia

• ? Most leading indicators of world trade point to growth remaining robust in the next few months, but there are some headwinds, especially from Asia. Overall, we expect trade growth to decelerate this year, yet the outlook has improved since August. We see world trade rising by 6.1% in 2017 and by 4.8% this year, up from our previous forecasts of 5.7% and 3.8%, respectively .
• ? The latest trade volume data for the major economies support our forecasts, as does our survey‐based export indicator, which leads trade by around three months. This indicator and the main measure of global freight volumes are consistent with world trade continuing to grow by around 6% y/y in the near term.
• ? World trade growth is likely to be supported by emerging markets (EMs), which made a large contribution to the trade recovery last year. Another factor that may be supportive – especially for EMs – is the slippage in the US dollar last year, as there is some evidence of a negative correlation between dollar strength and world trade.
• ? The recovery of demand in the Eurozone and expected fiscal stimulus in the US add to the positive constellation of factors supporting world trade growth. Business sentiment indicators remain positive and imply upside risks to our forecasts. Yet it is not obvious that they have a strong leading relationship with trade – and the statistical relationship has become weaker since 2007–2009. This reinforces our view that there has been a structural change in the relationship between world trade and world GDP.
• ? The main near‐term downside risks to world trade come from Asia. Freight indicators for Shanghai and Hong Kong have slowed markedly, as have semiconductor billings. Although Chinese activity indicators have also moderated, China's trade volume growth remains surprisingly strong.