The drop in commodities prices following the financial crisis has made it much harder for the world’s poorest countries to buy manufactured goods, according to a study.
The report by the International Trade Center (ITC) shows that least developed countries (LDCs) suffered a disastrous decline in 2009 in their terms of trade—which compare a country’s export and import prices, and hence indicate how much it needs to sell in order to buy goods.
A limited fall in import costs last year failed to compensate for much sharper falls in export earnings, said Willem van der Geest, lead economist of the ITC, a joint agency of the United Nations and World Trade Organization.
The terms of trade deterioration means that poor countries are worse off, even though global trade volumes are reviving.
LDC terms of trade had improved between 2004 and 2008 as commodity prices rose, allowing them to fund more imports, but have now dropped back to 2004-2005 levels, he said.
“2009 has essentially eroded all the favourable terms of trade movements ... All that gain has been wiped out on account of the financial crisis,” he said in an interview.
The economic slowdown following the financial crisis depressed demand, and with it prices of LDC exports.
The report shows that LDCs suffered deteriorating terms of trade not only with rich partners such as the United States or the European Union, but also with emerging economies such as Brazil or China (data for India and Russia are not available).
“Terms of trade declined even more than those with the EU and U.S.,” van der Geest said. “South-South trade enthusiasts should take note of that.”
Trading the same basket of goods, LDCs would have had to export more than twice as much in the first quarter of 2009 to finance the same level of imports from China as in the third quarter of 2008, the report shows.
LDCs can draw some relief this year from the fall in the euro, the unit of account used for imports from the EU, from which they source much of their machinery, van der Geest noted.
The study builds on an earlier report from January that looked at the impact of lower commodity prices on export earnings compared with export volumes for LDCs.
Although there was some improvement in the last quarter of 2009, LDCs now have to ship more to earn less. Exports, excluding oil, grew 5.8 percent in volume terms last year while export earnings fell 8.5 percent.
The figures vary widely by commodity. Exports of copper, sold by poor countries such as the Democratic Republic of Congo, rose 63 percent in volume terms last year but produced an increase in earnings of only 14.6 percent.
But volumes and earnings for textiles ticked down only slightly, leaving Bangladesh little affected. (Reuters)