The World Trade Organization (WTO) has revised its projection for global trade growth in 2023, cutting it by half from 1.7% to 0.8%. The WTO cited several factors that have dampened the outlook for trade, including persistent inflation, tighter monetary policy, the war in Ukraine, and the real estate crisis in China.
Inflation and interest rates weigh on trade
The WTO said that inflation has been more persistent than expected, especially in the United States and the European Union, where central banks have raised interest rates to curb price pressures. This has reduced consumer spending and business investment, which are key drivers of trade. The WTO also noted that higher energy prices have increased production costs and transport costs for traders.
According to the WTO, world trade volume grew by 9.5% in 2022, recovering from the sharp contraction caused by the COVID-19 pandemic in 2020 and 2021. However, trade growth slowed down significantly in the fourth quarter of 2022, as the effects of inflation and monetary tightening were felt in major economies.
Geopolitical and economic uncertainty add to trade woes
The WTO also pointed out that geopolitical and economic uncertainty have increased the risks for trade. The war in Ukraine, which erupted in late 2022, has disrupted commodity markets, especially natural gas, and raised tensions between Russia and its Western allies. The WTO warned that further escalation of the conflict could have serious consequences for trade and security in Europe and beyond.
Another source of uncertainty is the real estate crisis in China, which has hampered the recovery of the world’s largest exporter. The WTO said that strained property markets in China have reduced domestic demand and investment, as well as affected consumer confidence and financial stability. The WTO added that China’s efforts to curb carbon emissions and restructure its economy could also have short-term impacts on trade.
Trade growth expected to rebound in 2024
Despite the gloomy outlook for 2023, the WTO maintained its forecast for trade growth in 2024 at 3.3%. The WTO said that trade growth should pick up next year as inflation moderates and interest rates start to come down. The WTO also said that sectors that are more sensitive to business cycles, such as machinery and transport equipment, should stabilize and rebound.
However, the WTO cautioned that there are signs of supply chain fragmentation, which could threaten the positive outlook for 2024. The WTO said that the share of intermediate goods in world trade, an indicator of global supply chain activity, fell to 48.5% in the first half of 2023, compared to an average of 51% over the previous three years. The WTO also said that the share of Asian bilateral partners in US trade in parts and accessories, a key subset of intermediate inputs, fell to 38% in the first half of 2023, down from 43% in the same period of 2022.
WTO Director-General Ngozi Okonjo-Iweala said: “The projected slowdown in trade for 2023 is cause for concern, because of the adverse implications for the living standards of people around the world. Global economic fragmentation would only make these challenges worse, which is why WTO members must seize the opportunity to strengthen the global trading framework by avoiding protectionism and fostering a more resilient and inclusive global economy. The global economy, and in particular poor countries, will struggle to recover without a stable, open, predictable, rules-based and fair multilateral trading system.”
