Perspectives 2019 2020 Public Sector

Citi Perspectives 67 New Perspectives on Trade Finance Akeel Akhtar  Georgi Yordanov  Mehwish Jangda  Natasha Condon Globalization is evolving as a result of changes in the economic, geopolitical and technological environment. Multinational corporations, supranationals and governments must transform how they manage their trade flows in response. The global economy has faced multiple headwinds in 2019. The U.S. government shutdown at the beginning of the year was followed by mounting concerns around the U.S.-China trade war, declining Asian trade flows, idiosyncratic shocks in the euro area and ongoing uncertainty around Brexit. These have caused anxiety about the outlook for global growth, as indicated by Citi’s Global Growth Trackers, which are flat. The loosening of financial conditions has essentially offset deteriorating sentiment this year; activity has consequently remained stable. However, if the political and trade relationship between the U.S. and China continues to deteriorate, it will weigh heavily on global growth prospects. The U.S.-China trade war is simply the latest driver of an increasingly protectionist environment, which is dampening global integration. According to Citi GPS, the U.S. accounts for 17% of the protective measures for iron and steel, Russia and India have the greatest barriers for motor vehicles, India and Brazil have the most extensive protective measures for basic chemicals while Russia, India and Brazil are most protectionist when it comes to metals and mining. World trade intensity has stalled since the financial crisis due to countries’ reduced commitment to trade liberalization, the unravelling of global value chains (which is affecting productivity), and countries’ convergence to higher living standards. Realignment of trade flows The forces described above are already having an impact on corporate behavior and trade flows. When investing significant capital in launching new solutions and services, organizations need predictability to make confident business decisions. Trade discord has undermined business confidence: the process of evaluating and integrating new trade routes, suppliers and production locations is inhibiting overall decision making. U.K. warehouses are “full”, raising doubts about the ability of UK firms to stockpile goods ahead of a potential no-deal Brexit on 31 October. “There is no available space,” Peter Ward of the United Kingdom Warehousing Association told BBC Newsnight. The estimated vacancy rate for warehouses of over 100,000 square feet nationwide for the second quarter is 6.8%.