Blocked trade: Banks suffer from the decline in global flows

Sid Verma
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It was the weakest year for global trade since the financial crisis. Trade-finance margins and volumes fell in 2015, while bank competition and industry costs jumped. Euromoney surveys the fallout.

A wave of dollar-denominated corporate debt defaults; Middle Eastern conflicts that triggered a surge in political-risk premia; and weak productivity gains that reduced wages, capex and corporate profits. Some suggest these were the economic shocks that shook emerging markets last year.

In fact, none of these factors adequately explain why 2015 was the year the investment case for emerging markets unravelled. Simply put, last year was the weakest for global trade since the financial crisis. Weaker exports from emerging markets lay at the heart of their economic fragility last year. It drove foreign investor flight, the deterioration in balance-of-payments positions and the corresponding lack of fiscal and monetary firepower to service foreign debt.

Underscoring the fragility of the recovery, global trade contracted in the first six months of 2015, bucking the decades-long trend of trade expansion outpacing GDP growth. Trade volumes staged a modest recovery later in the year, according...