Global trade growth for 2018-19 downgraded as risks mount

Global trade growth for 2018-19 downgraded as risks mount

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The World Trade Organization (WTO) anticipates trade growth to slow down for the rest of the year and to further moderate in 2019 as trade tensions show no indication of abating.

The WTO said trade will expand at a more moderate pace than previously forecast, with merchandise trade volume growing 3.9% in 2018 and slowing further to 3.7% in 2019.

Trade growth in 2018 is now most likely to fall within a range of 3.4% to 4.4% from the previous forecast of 4.4%.

Rising trade tensions pose the biggest risk to the forecast, said WTO. It added that some of the downside risks it identified in April have since materialized, most notably a rise in actual and proposed trade measures targeting a variety of exports from large economies.

“The direct economic effects of these measures have been modest to date but the uncertainty they generate may already be having an impact through reduced investment spending,” noted WTO.

Monetary policy tightening in developed economies has also contributed to volatility in exchange rates and may continue to do so in the coming months.

WTO Director General Roberto Azevêdo said: “While trade growth remains strong, this downgrade reflects the heightened tensions that we are seeing between major trading partners. More than ever, it is critical for governments to work through their differences and show restraint.”

The updated trade forecast is based on expectations of world real GDP growth at market exchange rates of 3.1% in 2018 and 2.9% in 2019. This implies a ratio of trade growth to GDP growth of 1.3 in both years.

Aside from trade policy measures, another risk to the forecast is capital outflows and financial contagion in developing and emerging economies as developed countries raise interest rates, with negative consequences for trade.

Geopolitical tensions could also threaten resource supplies and upset production networks in certain regions. Finally, structural factors such as the rebalancing of the Chinese economy away from investment and toward consumption are still present and could weigh on import demand due to the high import content of investment.

“Overall, risks to the forecast are considerable and heavily weighted to the downside,” said WTO.

In the first half of 2018, world merchandise trade was up 3.8% compared to the same period in the previous year. Exports of developed economies rose 3.5% during the same period while shipments from developing economies increased by 3.6%.

On the import side, developed economies recorded year-on-year growth of 3.5% in the first half of 2018 while developing countries registered an increase of 4.9%. Imports of developed economies have generally been flat in 2018 while exports of developing economies plateaued similarly.

All geographical regions recorded positive year-on-year trade growth in both exports and imports in the first half of 2018, but some regions performed better than others.

North America saw the fastest export growth during this period at 4.8%, followed by Asia at 4.2%, and Europe at 2.8%. Exports of Other regions (comprising Africa, the Middle East, and the Commonwealth of Independent States including associate and former member States) increased by 2.7% while those of South America were up 1.1%.

Asia had the fastest import growth (6.1%) followed by South America (5.5%), North America (4.8%), Europe (2.9%), and Other regions (0.5%).

Photo: KINEX

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