From "Trade-Finance Pinch Hurts the Healthy," WSJ, 12/22/08:

The global financial crisis is drying up the financing that firms depend on for trade. That's making the global recession nastier and deeper than it otherwise would be.

As with all kinds of credit these days, financial institutions are making less trade finance available and charging more for it. But the squeeze in trade stands out because it pinches otherwise healthy companies that should be driving a recovery in global commerce. Already, the World Bank predicts trade will contract next year for the first time since 1982.

The Deteriorating Trade Outlook

Here's the IMF's recent forecasts for exports -- from October and then November -- for world trade, disaggregated into advanced and developing country groupings.

Figure 1: Real goods and services exports by country group. Source: IMF, World Economic Outlook Oct. 2008; Nov. 6 WEO update.

These developments in trade financing suggest that

...

Brad Setser says "Ut-Oh", beating me to the punch on the September trade release, which showed US exports plunging. It's a post that Paul Krugman rightly expresses some angst upon reading. And now I'm going to add two more reasons to worry (not that I think Setser and Krugman aren't aware of these points).

First, after reflecting upon the collapse of exports noted by Setser, think "disaggregate".

Figure 1 depicts exports of capital goods; they declined 10%, exceeding the 8% reported for all goods exports (all calcuations in log terms). That's 10% for September alone. Since the standard deviation of monthly log changes is 3.1% (2004M02-08M9), well, that's pretty significant... Why focus on capital goods exports (more so than say ag exports), given their volatility? Because they represent foreign demand for goods that can be used to produce things; as demand for capital goods goes down, so too should

...

About one-third of the S&P 500 reports earnings this week. Yesterday we saw euphoria and I thought it interesting that the major indices went up with oil prices. Today, oil prices are down, and stocks across the board slid at the open. Clearly, fears about the economy remain. Here are some things I'm reading today ... Robert Reich observes that the bailout plans, for all their trillions of dollars spent, are like "pouring water into an dry sponge." he says: Nothing will come out of it because Wall Street is so deep in debt that the banks are using the extra money to improve their balance sheets. They're hoarding it because their true balance sheets -- considering the off-balance sheet vehicles they created over the past several years -- are in such rotten shape.Mr. Reich also says: The underlying problem isn't a liquidity problem. As ...

by Edward Hugh: Barcelona India is in the middle of a storm at the moment, there can be no doubt about that. But the important point to note is that this storm is not of India's making. The financial turmoil in a number of key developed economies, and above all the United States, is sending shock waves across the global economy, and as is normal, when the earth trembles, it is the most fragile who notice it most. India's economy may be fragile in the sense that it is very vulnerable to what is colloqially known as global risk sentiment, but it is not fragile in terms of being susceptible to having its growth trajectory knocked completely off course. India may be shaken, but her economy will not be broken. Emerging Market Bonds Emerging-market bonds had their worst week in four years this week as the deepening credit crisis raised global recession concerns ...

by Edward Hugh: BarcelonaIndia is in the middle of a storm at the moment, there can be no doubt about that. But the important point to note is that this storm is not of India's making. The financial turmoil in a number of key developed economies, and above all the United States, is sending shock waves across the global economy, and as is normal, when the earth trembles, it is the most fragile who notice it most. India's economy may be fragile in the sense that it is very vulnerable to what is colloqially known as global risk sentiment, but it is not fragile in terms of being susceptible to having its growth trajectory knocked completely off course. India may be shaken, but her economy will not be broken.Emerging Market BondsEmerging-market bonds had their worst week in four years this week as the deepening ...

by Edward Hugh: Barcelona India's growth rate fell back in the second calendar quarter of 2008 (and the first quarter of the 2008/09 financial year), expanding at the slowest rate recorded in three years, as the Reserve Bank of India struggles to control record high inflation by applying tight credit conditions. Annual growth slowed to 7.9 per cent in the quarter of 2008 which ended on June 30, significantly lower than the 8.8 per cent rate reported for the January to March quarter. Growth momentum has obviously been slowing on tighter monetary policy and the adverse global environment. Higher interest rates, slower bank credit growth and higher oil and commodity prices are evidently now having a marked effect on activity levels in the Indian economy. However, in spite of the slowdown, the growth rate of Asia’s third largest economy remains strong, and there are very positive signs ...

India's inflation remained well above the central bank's comfort level for the sixth straight month towards the end of August, increasing the likelihood that incoming Governor Duvvuri Subbarao will continue to raise interest rates. Wholesale prices were up by an annual 12.34 percent in the week ended August 23, according to the latest data from the Indian commerce ministry said in New Delhi. That compared with a 12.4 percent gain in the previous week.Subbarao, whose three-year term at the Reserve Bank of India starts this weekend is under some pressure to show that he is independent and no less concerned about inflation than his predecessor, and is quoted as saying that the "obvious" answer to surging prices is tighter monetary policy. Outgoing Governor Yaga Venugopal Reddy increased the central bank's benchmark rate three times between June and the end of August, ...

by Edward Hugh: Barcelona

Executive SummaryIndia’s latest run of strong economic growth and continuing macroeconomic stability is a tribute the important progress made in recent years in macroeconomic management techniques as well as to an earlier generation of structural reforms. India’s economy has now expanded at an average rate of about 8½ percent for four years running, on the back of rising productivity and sustained investment. Inflation after ebbing in the second half of 2007 has now returned in full force and become one of the most pressing macro problems facing the Indian economy. In fact the record capital inflows which have followed the bout of global financial turbulance and a slowing U.S. economy, while in the long run beneficial, have only served to complicate the application of sound monetary policy. The current account deficit, which had remained modest, is now – on the back of high oil

...

India's inflation accelerated again in mid July, and hit it highest level since 1995, providing additional evidence to support last week's central bank decision to raise borrowing costs for the third time in two months. Wholesale prices were up 11.98 percent in the week to July 19, after rising 11.89 percent in the previous week, according to data from the commerce ministry released in New Delhi on Friday.

The Reserve Bank of India raised its repurchase rate by a half-percentage point to 9 percent on 29 July, giving priority to the inflation fight over India's short term growth rate. Indeed many economists consider that the bank may well increase the benchmark rate again in the next three months. The cash reserve ratio was also raised 8.75 to 9 percent and in the statement which followed the decision the bank said it

...