Explaining the Divergence between GDP and Trade Growth

In the past few years, headline GDP growth and total trade growth have tended to move in tandem with each other. High levels of GDP growth have typically corresponded with high trade growth. However, GDP growth outpaced trade growth in the final quarter of 2006 and most of 2007. While real GDP grew at similar rates in 2006 and 2007, total trade growth fell sharply from 13 per cent in 2006 to 4.5 per cent in 2007 (Exhibit 1).

BROAD REASONS BEHIND THE DIVERGENCE IN GDP AND TRADE GROWTH

(1) Stronger performance of non-goods exporting sectors

In 2007, the non-goods exporting sectors, particularly financial services and construction, saw better performance than the goods exporting sectors (viz. manufacturing and wholesale trade). The financial and construction sectors enjoyed strong growth of 18 per cent in 2007, outpacing the 6.4 per cent expansion of manufacturing and wholesale trade (Exhibit 2). As a result, the percentage contribution to GDP growth from manufacturing and wholesale trade dropped from 58 per cent in 2006 to 36 per cent in2007. As financial services and construction do not contribute to merchandise exports, their strong performance did not translate into growth in the headline trade figures.

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