Increase in Exports Bodes Well for Growth

Discussion in 'Wall St. News' started by ASusilovic, Jul 12, 2009.

  1. entative signs of life in global trade are emerging, buoying growth forecasts in the U.S. and China, two of the world's most important economies.

    U.S. exports grew in May, while imports fell, helping to narrow the trade deficit to its lowest level in nearly nine years. The report prompted economists to revise up their estimates of second-quarter gross domestic product. Some even suggested the economy might have grown slightly in the second quarter.


    The trade gap decreased to $26 billion in May from April's $28.8 billion, the Commerce Department said Friday. Exports rose 1.6% in May to $123.3 billion on a seasonally adjusted basis. Imports fell 0.6% to $149.3 billion.

    "It's a very good sign for GDP," says Paul Ashworth, senior U.S. economist for Capital Economics in Toronto. "The economy didn't shrink by much in the second quarter, and there's an outside chance it recorded a gain." Forecasting firm Macroeconomic Advisers increased its second-quarter GDP forecast from minus 1.6% to plus 0.2% on the news.

    New figures from China offered more support for the prospect that the massive drop in global trade is abating. Exports in June fell 21.4% from a year earlier, a smaller drop than May's 26% decline, China's state-run Xinhua News Agency reported Friday, citing official data.

    Goldman Sachs estimated Chinese growth will be faster than the nearly 8% it predicted earlier in the week because of the trade numbers, according to a note from Goldman economist Yu Song. Trade is "becoming less of a drag on the overall economy while domestic-demand growth has been gaining strength," the report said.

    To be sure, the good news on the U.S. export front was tempered by the decline in imports, which underscores how American businesses and consumers spent gingerly on imported goods. That is bad news for overseas economies that rely on the U.S. market. And trade overall remains far below levels from before the financial crisis.

    "Arithmetically this suggests trade is going to be a big positive boost, but largely as a result of imports falling at a rapid pace," says Ted Wieseman, economist at Morgan Stanley in New York. Because exports boost GDP and imports drag it down, the narrowing of the trade gap helps boost the overall growth figure. Exports accounted for 13% of GDP in 2008.