WTO lowers trade forecast as tensions unsettle global economy

The projected increase in 2020 is now 2.7 per cent, down from 3 per cent previously. The economists caution that downside risks remain high and that the 2020 projection depends on a return to more normal trade relations.

MAIN POINTS
• World merchandise trade volume is forecast to grow 1.2 per cnt in 2019. This is substantially below the 2.6 per cent trade growth projected in April.
• Trade volume growth should accelerate slightly to 2.7 per cent in 2020 while global GDP growth holds steady at 2.3 per cent (at market exchange rates), but this depends on an easing of trade tensions.
• Trade conflicts pose the biggest downside risk to the forecast but macroeconomic shocks and financial volatility are also potential triggers for a steeper downturn.
• Trade-related indicators signal a worrying trajectory for world trade based on global export orders and economic policy uncertainty.
• Export and import growth slowed across all regions and at all levels of development in the first half of 2019.

“The darkening outlook for trade is discouraging but not unexpected. Beyond their direct effects, trade conflicts heighten uncertainty and are leading some businesses to delay the productivity-enhancing investments that are essential to raising living standards,” said WTO Director-General Roberto Azevedo. “Job creation may also be hampered as firms employ fewer workers to produce goods and services for export.”

“Resolving trade disagreements would allow WTO members to avoid such costs,” the WTO Director-General added. “The multilateral trading system remains the most important global forum for settling differences and providing solutions for the challenges of the 21st century global economy. Members should work together in a spirit of cooperation to reform the WTO and make it even stronger and more effective.”

The updated trade forecast is based on consensus estimates of world GDP growth of 2.3 per cent at market exchange rates for both 2019 and 2020, down from 2.6 per cent previously. Slowing economic growth is partly due to rising trade tensions but also reflects country-specific cyclical and structural factors, including the shifting monetary policy stance in developed economies and Brexit-related uncertainty in the European Union. Macroeconomic risks are firmly tilted to the downside.

Due to the high degree of uncertainty associated with trade forecasts under current conditions, the estimated growth rate for world trade in 2019 is placed within a range of 0.5 per cent to 1.6 per cent. Trade growth could fall below this range if trade tensions continue to build, or outperform it if they start to recede. The range of likely values is wider for 2020, ranging from 1.7 per cent to 3.7 per cent, with better outcomes depending on an easing of trade tensions.

Risks to the forecast are heavily weighted to the downside and dominated by trade policy. Further rounds of tariffs and retaliation could produce a destructive cycle of recrimination. Shifting monetary and fiscal policies could destabilise volatile financial markets. A sharper slowing of the global economy could produce an even bigger downturn in trade. Finally, a disorderly Brexit could have a significant regional impact, mostly confined to Europe.

Chart 1: World merchandise exports and imports by level of development, 2012Q1-2019Q2
Volume index, 2012Q1=100

Charts 1 and 2 show quarterly merchandise export and import volumes on a seasonally-adjusted basis by level of development and geographic region. In the first half of 2019, world merchandise trade was up 0.6 per cent compared to the same period in the previous year. This marks a substantial slowdown compared to recent years. Exports of developed economies were up just 0.2 per cent for the year-to-date, while those of developing economies were up 1.3 per cent. On the import side, developed economies recorded year-on-year growth of 1.1 per cent while developing countries declined by 0.4 per cemt. Growth rates based on quarterly data may differ slightly from calculations based on annual statistics, but they should be of similar magnitude.

Chart 2: Merchandise exports and imports by region, 2012Q1-2019Q2
Volume index, 2012Q1=100