Trade growth is expected to lose momentum in the second half of this year and remain subdued in 2023, as the global economy sustains multiple shocks, according to the latest forecast from the World Trade Organization-WTO.
The new forecast revises estimates published in April this year, just weeks after the start of the war in Ukraine. At the time, WTO economists had to rely on simulations for their projections, in the absence of hard data about the conflict’s impact.
Although global merchandise trade volume is estimated to grow 3.5 per cent in 2022, or slightly better than the 3.0 per cent anticipated in April, it will slow to 1 per cent next year, a sharp decline from the 3.4 per cent previously estimated.
Demand for imports is expected to weaken as growth slows in major economies for different reasons, WTO said. In Europe, high energy prices resulting from the Russian invasion of Ukraine will squeeze household spending and raise manufacturing costs, while the United States monetary policy tightening will affect spending in areas where interest rates count, such as housing, motor vehicles and fixed investments.
China also continues to struggle with COVID-19 outbreaks and production disruptions coupled with weak external demand while developing countries like Uganda are likely to face food insecurity and debt distress as import bills for fuels, food and fertilizers rise.
Overall, energy prices jumped 78 per cent year-on-year in August, according to the forecast. Food prices increased 11 per cent, grain prices were up 15 per cent and fertilizer 60 per cent. Many currencies have also fallen against the US Dollar in recent months, another factor that is making food and fuel more expensive.
Ngozi Okonjo-Iweala, the WTO Director-General, said policymakers face unenviable choices as they try to find an optimal balance between tackling inflation, maintaining full employment, and advancing important goals such as transitioning to clean energy. She underscored how trade is a vital tool – both for enhancing the global supply of goods and services, as well as for lowering the cost to achieve net-zero carbon emissions.
However, the UN partner agency has cautioned against imposing trade restrictions which would ultimately result in slower growth and lower living standards.
“While trade restrictions may be a tempting response to the supply vulnerabilities that have been exposed by the shocks of the past two years, a retrenchment of global supply chains would only deepen inflationary pressures, leading to slower economic growth and reduced living standards over time,” she said.
Ngozi added that countries need a deeper, more diversified and less concentrated base for producing goods and services in addition to boosting economic growth. This, she says, would contribute to supply resilience and long-term price stability by mitigating exposure to extreme weather events and other localized disruptions.
WTO said that the Middle East will have the strongest export growth of any region this year, 14.6 per cent, followed by Africa, North America, Asia, Europe, and South America. The region also had the fastest trade volume growth on the import side at 11.1 per cent. While the Middle East and Africa should see small declines in exports in 2023, imports will remain strong.
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