Periphery to Core Dynamic: Global Trade and Industrial Production Fall in January

Risks from global trade and industrial production may have emerged.

From the CPB Netherlands Bureau for Economic Policy Analysis

Developments in international trade and industrial production

-January 2015:world trade down 1.4% month on month, following a 1.3% increase in December.

-January 2015:world industrial production down 0.3% month on month, following a 0.6% increase in December

The charts of global trade

The distribution of world trade per region…

The above has been based on volumes. 

The downturn in global trade has been broad based. Emerging markets led the way for imports (sign of slowing domestic economies), while developed economies dominated the decline for exports.

It’s the opposite based on dollar per unit value: Emerging markets drove the downturn in exports, while advance economies spearheaded the decline in imports.

The above represents another wonderful exhibit which debunks the popular myth where cheap currencies have been thought to drive exports. The strong dollar hasn’t juiced up either exports by emerging markets or imports by the US.

Here is the global industrial production charts.

The above looks very much like a validation of my periphery to core theory in progress.

All actions have consequences. The adverse effects of bubble policies implemented by central bankers since 2008 to mount a global rescue (of bankers and cronies) seem as becoming more apparent. They have been transmitted to the world through, first the emerging markets and, next to developed economies. Eventually both EM and DM economies should falter.

As I wrote in early 2014

Even when the exposure would seem negligible, if the adverse impact of emerging markets to the US and developed economies won’t be offset by growth (exports, bank assets and corporate profits) in developed nations or in frontier nations, then there will be a drag on the growth of developed economies, which would hardly be inconsequential. Why? Because the feedback loop from the sizeable developed economies will magnify on the downside trajectory of emerging market growth which again will ricochet back to developed economies and so forth. Such feedback mechanism is the essence of periphery-to-core dynamics which shows how economic and financial pathologies, like biological contemporaries, operate at the margins or by stages.

I know one month doesn’t a trend make, yet could this herald a possible major inflection point? 

Will the world succumb to a recession soon?