"Despite Trade Slowdown, Demand for Eco-friendly and AI Rises...Is the Future Food Industry Emerging?"

The International Financial Center analyzed that despite the overall slowdown in global merchandise trade this year, demand in the eco-friendly and artificial intelligence (AI) sectors is increasing significantly.

According to the International Financial Center's report "Recent Global Trade Situation and Evaluation" on the 26th, the growth in the eco-friendly sector continues due to the promotion of 'green transition' policies by various countries and recent abnormal weather conditions, while AI has rapidly emerged as an international topic, increasing related demand.

The report stated, "Trade volume of eco-friendly products increased by nearly 4% in the second half of 2022 as decarbonization and the spread of renewable energy accelerated, and the upward trend continues in 2023, centered on electric vehicles and secondary batteries." It also cited Goldman Sachs, forecasting that global private investment related to AI will increase by about 20% compared to the previous year.

Export and import cargo are piled high at Sinsundae Pier in Busan Port. South Korea's annual export value surpassed 640 billion dollars in 2021, setting a new record. Since recording its first 100 million dollars in 1964, it exceeded 10 billion dollars in 1977, 100 billion dollars in 1995, and 600 billion dollars in 2018. This year, surpassing 640 billion dollars, it marked a new milestone in 66 years of trade history.

/Busan=Photo by Kang Jin-hyung aymsdream@

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The overall trade volume is expected to grow by around 2% this year due to China's influence, with some base effects anticipated next year. According to the report, despite robust economies in some advanced countries, the impact of supply chain contraction centered on China is expected to gradually increase toward the end of the year. The International Financial Center noted that major international organizations such as the International Monetary Fund (IMF) and the United Nations (UN) have recently projected trade volume growth rates around 2%.

The report explained, "Global merchandise trade continues to be sluggish due to weakened import demand in advanced countries and geopolitical conflicts," adding, "China's export-led growth is constrained by reduced imports from advanced countries, significantly shrinking the 'trade growth due to globalization' mechanism."

High levels of inflation and debt burdens in advanced countries such as the United States, the United Kingdom, and Europe are limiting import demand. In the case of the United States, the Federal Reserve's (Fed) tightening stance is expected to continue, increasing pressure for a stronger dollar, which is likely to negatively affect global trade through rising import prices, deteriorating corporate financing conditions, and contraction in production activities.

Issues related to China also act as downward factors. If the confrontation between China, Russia, and Western countries intensifies, the fragmentation of trade could expand. The report explained, "Recent contraction in Chinese household consumption is expected to trigger a vicious cycle of 'new orders ↓ → product shipment prices ↓ → corporate margins ↓ → investment and employment ↓ → import slowdown' for the time being." Since the global value chain centered on China accounts for about 20% of total global trade, this vicious cycle is expected to have a significant impact.

However, there is room for improvement as recent supply chain indicators have recovered to pre-pandemic levels, and a stable trend is likely to continue for the time being due to weak product demand and improved supply conditions. The expectation of a soft landing has been strengthened recently due to favorable investment and consumption despite the risk of prolonged tightening policies.

Source=Bank of Korea

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