So export growth is slowing, even as imports are rising again, despite the dollar only getting weaker over the course of the quarter.
To which I leave a comment: "J Curves". I’ve now been asked to explain myself. Ahem.
Essentially it’s a real world example of that folk wisdom, that things get worse before they get better.
The shape of the trend of a country’s trade balance following a devaluation. A lower exchange rate initially means cheaper exports and more expensive imports, making the current account worse (a bigger deficit or smaller surplus). After a while, though, the volume of exports will start to rise because of their lower price to foreign buyers, and domestic consumers will buy fewer of the costlier imports. Eventually, the trade balance will improve on what it was before the devaluation. If there is a currency appreciation there may be an inverted J-curve.
Following the depreciation / devaluation of the currency the volume of imports and exports will remain level due in part to pre-existing contracts for imported goods that have to be honoured. However, the depreciation will cause the price of imports to rise and therefore total spending on imports will subsequently increase. It is this that causes the worsening of the current account.
That Wikipedia entry is actually pretty good there. There’s a great deal of speculation about the actual shape of such a J Curve, about how long it all goes on for, but the basic point sticks. It’s not "despite" the dollar only getting weaker over the course of the quarter, it’s "because " ditto ditto that export growth in cash terms is slowing even as imports in cash terms are rising again.
As well as pre-existing contracts, there’s another contributor, that it takes time for people’s behaviour to change. As an example, we’ve been buying a certain material from Russia for the past 12 years. We’ve just switched to a US supplier as a result of the changes in the rouble/dollar rate: about 9 months after it first would have been cheaper to do so.
Those J Curve effects do disappear though, in time. One thing that can delay them doing so though is that the currency declines again, leading to another such J dropping into our trade statistics. And if before that one has worked its way through the system, like a pig through a python, it drops again…well, you get the picture. Eventually of course the longer term effects overcome even a succession of J Curves and the trade balance comes roaring back.
As I fully expect the US one to, indeed, I’d be really rather surprised if in 5 years time the US wasn’t running a trade surplus.