Roubini's views

Some excerpts from RGE Monitor:

After bottoming in Q2 2009, world trade volumes have grown steadily since H2 2009, with momentum continuing into early 2010. Emerging markets (EMs) are driving the trade recovery with their imports approaching the 2008 peak. In early 2010, emerging Asia’s exports and imports crossed their 2008 peaks as regional domestic demand, inventory restocking in Asia and abroad, and Chinese commodity demand boosted intra-Asia trade.

Domestic demand has fueled a sharp rise in LatAm imports while its exports approached the 2008 peak, helped by strong commodity exports and reviving U.S. demand. The Middle East and Africa’s trade has also revived decisively, whereas deleveraging and fiscal austerity are weighing on Central and Eastern Europe’s trade. While Asian demand has supported Japan’s exports, U.S. and eurozone exports and imports are still over 10% shy of their 2008 peak due to a slow recovery in domestic consumption.

After plunging in 2009, investment is recovering due to strong government investment and improving capex in EMs and advanced economies. Replacement of capital and fiscal incentives for capex and automobile purchases are boosting global trade in capital goods, automobiles and auto parts and components. But trade volumes were still 7.0% below their 2008 peak as of early 2010

And now, debt crisis and fiscal austerity in the eurozone and potential trade and financial contagion to the rest of the world threaten to stifle the global trade recovery in 2010 and increase protectionism and trade finance costs. Aggressive fiscal cutbacks in periphery eurozone countries have arrived earlier than expected, which—along with a weak euro—are likely to reduce the EU’s import demand starting in 2010. This will affect global trade in consumer and capital goods since the EU accounts for nearly 40% of global imports and is a key export destination for the world’s major economies. The euro weakness will boost EU exports, especially those of competitive countries like Germany and the Netherlands.

The current crisis would also force core eurozone countries and those with vulnerable fiscal outlooks to undertake fiscal austerity as soon as 2011, weighing on private demand and imports. Developed economies’ imports are expected to recover sluggishly amid slow recovery in consumption and capacity utilization. Imports of EMs with large domestic demand and any expansion of global fiscal stimulus will fail to offset weaker import demand from the eurozone and other economies. Due to these factors, global trade momentum will ease over the course of 2010 and grow at a slower pace in 2011. RGE forecasts world trade volume to grow 7.5% in 2010, with downside risks, following a contraction of 12.2% in 2009.