International trade growth is expected to decelerate to 1.7 percent in 2023 from 2.7 percent in the last year due to multiple factors ranging from the war in Ukraine, continued high inflation, ultra-conservative monetary policies and financial market uncertainty, according to the World Trade Organization’s global trade outlook report released Wednesday.
Although a downturn from last year, the forecast is higher than the 1 percent estimate made last October. Key to the slightly more optimistic estimate is the relaxation of COVID-19 pandemic controls in China, which is expected to unleash pent-up consumer demand in the country, in turn boosting international trade.
WTO economists projected that global trade growth could increase to 3.2 percent next year, but acknowledged that there is an element of “uncertainty” and marked headwinds attached to the overall performance next year.
The economists said that “risks to the forecast are tilted to the downside, including geopolitical tensions, food insecurity, potential financial (in)stability stemming from monetary policy tightening, and increasing levels of debt.”
The report does not suggest how global trade is being impacted by the inexorable fragmentation of the global trading system into security-driven blocs like the ones led by the United States through
reshoring, friend-shoring and Indo-Pacific Economic Framework, as well as the continued disruption of global supply chains, said analysts familiar with the report.
The other bullet points of the report are that trade volume growth in 2022 “was slower than expected at 2.7% following a fourth-quarter slump, but still stronger than worst-case scenarios considered at the start of the war in Ukraine.”
Earlier, WTO economists suggested that food supplies and prices showed an unexpected resilience despite the war that began in Ukraine in February 2022.
In their report, the economists argued that “goods trade was more resilient than expected for most of 2022 despite the drag exerted by the war between Russia and Ukraine.”
They maintained that volume growth in merchandise trade averaged 4.2 percent in the first three quarters of 2022, “before a 2.4% quarter-on-quarter decline in the four quarter” that dragged growth for the year down.
They said that “the final result for 2022 was weaker than the WTO’s October forecast of 3.5%,” while suggesting that it was close to the earlier estimate of 3% from last April, which relied on simulations to gauge the economic impact of the war.”
Another important facet of the global trade performance last year was that merchandise trade grew at 12 percent in value terms to $25.3 trillion, “inflated in part by high global commodity prices.” The economists estimated that “the value of world commercial services trade increased 15% in
2022 to US$6.8 trillion” in which “digitally-delivered services exports were worth US$3.82 billion.” Force for Resilience
Against this backdrop, “trade continues to be a force for resilience in the global economy, but it will remain under pressure from external factors in 2023,” WTO Director-General Ngozi Okonjo-Iweala said.
Without naming any countries, she emphasized that “this makes it even more important for governments to avoid trade fragmentation and refrain from introducing obstacles to trade.”
She touted that the 12th ministerial conference held last June, saying that it “would bolster economic growth and people's living standards over the long term.”
According to WTO Chief Economist Ralph Ossa, “The lingering effects of COVID-19 and the rising geopolitical tensions were the main factors impacting trade and output in 2022 and this is likely to be the case in 2023 as well. Interest rate hikes in advanced economies have also revealed weaknesses in banking systems that could lead to wider financial instability if left unchecked. Governments and regulators need to be alert to these and other financial risks in the coming months.”
According to the report, “several factors contributed to the trade slump in the fourth quarter of 2022, the most conspicuous being the rise in global commodity prices.”
Food and Energy Prices
Explaining the overall performance in the last quarter, WTO economist Coleman Nee pointed
out that food and energy prices receded from their post-conflict peaks by the fourth quarter, they remained high by historical standards and continued to erode real incomes and import demand.
He suggested that COVID-19 infections in China during the last quarter of 2022 had a major impact on the Chinese economy, resulting in a drop in China’s GDP by almost 0.4 percent.
According to the report, “Europe’s expected GDP growth has been revised up by 0.7 percentage points while Asia’s has been revised down by 0.4 points.” Further, “stronger than expected GDP growth in Europe would stimulate intra-EU trade, which gives Europe extra weight in world totals.”
Mr. Nee said that Europe’s exports are now projected to grow by 1.8 percent in 2023, up from the previous estimate of 0.8 percent., while “Europe’s imports are expected to decline by 0.6% this year, less than the previous estimate of -0.7%.”
As regards North America, the report forecast the “strongest merchandise export growth of any WTO region in 2023 (3.3%), followed by the CIS (2.8%), Asia (2.5%) and Europe (1.8%).”
The report expects “weaker export growth is expected in the Middle East (0.9%) and South America (0.3%) while Africa’s goods exports are expected to decline
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