Durable goods and the collapse of global trade

Global trade has experienced a stunning collapse in the current recession, with the World Trade Organization estimating a decrease of roughly 9 percent in 2009--the biggest contraction since the Second World War. The swift decline caused substantial damage to the global economy, hitting Japan and other countries with large trade sectors especially hard. It also raised concerns that the trade collapse would worsen the global recession and delay recovery. ; Several factors contributed to the global trade collapse. However, the ultimate causes are tied to the global financial crisis that started in mid-2007. Financial markets deteriorated over the next year, and the global economy's growth prospects shifted suddenly in September 2008. In the final months of the year, the forecast for 2009 gross domestic product (GDP) growth went from a moderate slowdown to a sharp contraction. ; Consumers and investors worldwide started to realize that the financial crisis' impact on real economies may be longer and more severe than they had expected. They pulled back significantly, leading to declines in total consumption and investment that spilled over into global trade. Particularly hard hit were consumer and producer purchases of long-lasting goods. We will see that demand for these durable goods played an important role in the recent global trade collapse.