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Economics

Tracking global trade: supply pressures show signs of easing amidst weaker demand

World trade activity edged up last month according to the latest data and supply pressures are finally beginning to show signs of easing.

After stumbling in Q1, global trade is on the rise

Import growth was broad-based across regions, except for US and Africa/Middle East, likely linked to Ukraine war and with that, rising food prices. Export growth was also broad-based across regions, except the US, emerging Asia ex-China and Latin America. Chinese exports saw a sharp rebound in exports in May (13% month-on-month) on the back of easing covid containment measures.


Export and import growth was broadly positive in May

Sources: CPB Netherlands, NatWest Markets
 

Supply chain pressures are easing

A multitude of data suggest that supply chain pressures started to ease heading into the summer:

  • Shipping costs are moderating: Despite remaining higher than their pre-covid levels, shipping costs ebbed in May and largely continued the trend in June and July.
  • Delivery times are dropping: The US Federal Bank of New York’s Global Supply Chain Pressure Index (GSCPI), which reflects supplier delivery times, has fallen in June and July. The June decline was primarily driven by large drop in China’s suppliers’ deliveries times on the back of less restrictive covid containment policies from early June.
  • Backlogs are being cleared: Recent PMI surveys show a decline in backlogs of work in manufacturing in June and July.

A closer look at the NatWest Markets Regional Supply Chain Index (RSCI) also suggests that supply chain pressures eased in the UK, Europe, China, and the US. But there was a slight intensification of pressures in Japan, probably a delayed reaction to manufacturers being hit by strict curbs in China.


RSCI: supply chain pressures showed signs of easing nearly everywhere

Sources: NatWest Markets estimates based on data from S&P Global, national sources, Bloomberg; Note: Numbers indicate standard deviations from the long-term average; Green shows improvement, while red means intensification of pressures.

How will weaker global demand affect supply chains?

Forward-looking indicators such as new manufacturing orders suggest weaker global demand in June and July, which might weigh on global trade activity in the months ahead. Real-time shipping data suggests the upward trend in trade should continue. 

But the cost-of-living crisis and rising interest rates are likely to combine to produce a thriftier global consumer. That said, we expect some easing of global inflationary pressures amidst weaker demand and better supply and, consequently, lower shipping costs.

Get in touch

To learn more about the implications of global supply chain pressures for your financial strategy, speak with your NatWest representative or get in touch with us by clicking here.

This material is published by NatWest Group plc (“NatWest Group”), for information purposes only and should not be regarded as providing any specific advice. Recipients should make their own independent evaluation of this information and no action should be taken, solely relying on it. This material should not be reproduced or disclosed without our consent. It is not intended for distribution in any jurisdiction in which this would be prohibited. Whilst this information is believed to be reliable, it has not been independently verified by NatWest Group and NatWest Group makes no representation or warranty (express or implied) of any kind, as regards the accuracy or completeness of this information, nor does it accept any responsibility or liability for any loss or damage arising in any way from any use made of or reliance placed on, this information. Unless otherwise stated, any views, forecasts, or estimates are solely those of the NatWest Group Economics Department, as of this date and are subject to change without notice.

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