BNM: Economic Weakness In Several Major Advanced Economies Affects World Trade

KUALA LUMPUR, March 24 (Bernama) -- Persistent economic weakness, particularly in several of the major advanced economies, is likely to be the key factor in explaining the modest performance of world trade, says Bank Negara Malaysia (BNM or Malaysia's Central Bank). In its 2015 Annual Report released Wednesday, BNM said the sharp growth contraction and the impairment of the financial systems experienced by these economies during the crisis resulted in a protracted compression in demand, which constrained the pace of expansion in global trade. "In the advanced economies, while consumer spending has been on a recovering trend, investment growth has remained weak," said the central bank. In Europe, domestic demand has been further weakened by the implementation of fiscal austerity measures and weak investor sentiments amid prolonged concerns surrounding the European sovereign debt crisis, it said. BNM said there are also structural factors at play, in particular the diminishing impact of major catalytic factors that were important drivers of the high global trade growth observed in the 1990s and early 2000s. "First, the proliferation of global value chains (GVCs) catalysed a rapid increase in global trade in intermediate goods. "Second, major trade liberalisation breakthroughs, including the formation of the European Union and the World Trade Organisation (WTO), resulted in the lowering of tariffs and regulatory barriers," BNM said, adding that the accession of China into the WTO in 2001 marked a major shift in the global trade landscape. In the past few decades, Asia, given its long history of global orientation and trade openness, has benefited tremendously from the rapid expansion of international trade activity, the central bank said. "The diversity of resources in the region enabled each economy to specialise at different stages of both regional and global production networks," it said. On Asia's prospects, BNM said with the effect of past trends diminishing, the future direction of global trade will depend on the interplay between the various ongoing and emerging structural shifts in the global economy and trade landscape. --BERNAMA