WTO halves its forecast for global trade growth

The World Trade Organization (WTO) has halved its forecast for global merchandise trade growth this year, highlighting inflation and rising interest rates in the US and EU, the troubled Chinese real estate market, and the war in Ukraine.

The volume of merchandise trade is expected to increase by only 0.8 percent in 2023, half as weak as previously projected in April, the WTO announced.

In 2024, they predict a recovery, with a projected growth rate of 3.3 percent, more or less in line with the April forecast.

The slowdown in trade has spread to more countries and more types of goods, particularly iron and steel, office and telecommunications equipment, textiles, and clothing, the WTO noted. Cars, however, are a significant exception, given the strong sales growth this year, they highlighted.

They again warned of signs of trade fragmentation, pointing out the reduced share of intermediate goods in merchandise trade, an indicator of global supply chain activity. In the first half of the year, their share was 48.5 percent, compared to an average of 51 percent in the previous three years.

It is not entirely clear whether this decline is due to geopolitical tensions or a general economic slowdown, they note. – The data suggest that goods continue to be produced through complex supply chains, but these chains may have reached their maximum – they explain at the WTO.

They add that the prospects for raising or lowering the forecast are more or less balanced. Possible adverse factors would include a more pronounced slowdown in Chinese economic activity than currently expected and rising inflation that would necessitate higher interest rates over a longer period.

Forecasts could be raised if inflation eases in the short term, they say at the WTO. They also emphasize that there is no evidence of broader deglobalization that could threaten the trade forecast for the next year.

The expected slowdown in trade should concern us because it could reduce the standard of living for people around the world, especially in poor countries, explains WTO Director-General Ngozi Okonjo-Iweala. – Fragmentation of the global economy would only exacerbate these challenges – she warned.

The forecasts cover only merchandise trade, and the WTO says that the growth of trade in services is slowing after a strong recovery in international tourism last year.