Info Service on WTO and Trade Issues (Oct17/01)
2 October 2017
Third World Network
World trade now forecast to grow 3.6% this year, says WTO
Published in SUNS #8537 dated 22 September 2017
Geneva, 21 Sep (Kanaga Raja) - World merchandise trade in volume terms
is now forecast to grow by 3.6% in 2017, up from the previous estimate
earlier this year of 2.4% growth, the World Trade Organisation (WTO)
said on Thursday.
In their latest trade statistics and outlook, the WTO economists have
revised upward their forecast for trade expansion this year on account
of stronger-than-expected growth driven by Asia and North America.
"Stronger growth in 2017 was attributed to a resurgence of Asian
trade flows as intra-regional shipments picked up and as import demand
in North America recovered after stalling in 2016," they said.
According to the WTO, growth of 3.6% would represent a substantial
improvement on the lacklustre 1.3% increase in 2016.
It however cautioned that recovery could be undermined by downside
risks, including trade policy measures, monetary tightening, geopolitical
tensions and costly natural disasters.
"The improved outlook for trade is welcome news, but substantial
risks that threaten the world economy remain in place and could easily
undermine any trade recovery," said WTO Director-General Roberto
Azevedo, in a WTO press release.
"These risks include the possibility that protectionist rhetoric
translates into trade restrictive actions, a worrying rise in global
geopolitical tensions and a rising economic toll from natural disasters,"
"Though difficult to quantify, these risks are very real. As
a result, increased optimism about trade should be tempered with a
healthy dose of caution," he further said.
[After the two-day policy meeting of the Fed this week, Fed chair
Janet Yellen has indicated that the Fed will begin reversing its unorthodox
quantitative easing (QE), and start in October to reduce its approximately
$4.2 trillion in holdings of US treasury bonds and mortgage-backed
securities by initially cutting up to $10 billion each month from
the amount of maturing securities it reinvests. The Fed also expects
by December a rate rise in its policy rate, two next year, and one
[The Bank for International Settlements (BIS), in its Quarterly Review
issued in September, has pointed to the high private sector debt and
has indicated that while it was time for reversal of QE and easy money,
the restoration of more normal rates must be a cautious process. The
Fed signals and BIS cautionary note seem to point in fact to a likely
negative impact on world trade and trade growth. SUNS]
According to the WTO economists, the new estimate for world trade
growth in 2017 is at the high end of the range of estimates provided
in their most recent trade forecast of 12 April 2017 (1.8% - 3.6%).
The strength of the revision is partly due to a modest improvement
in the consensus forecast for world GDP growth (2.8% in 2017 at market
exchange rates, up from 2.3% in 2016) and partly due to the composition
of that growth.
GDP growth accelerated in most major economies in the second quarter
(Q2), most notably in China where quarter-on-quarter growth rose from
1.3% in Q1 (the first quarter, equivalent to an annual rate of around
5.3%) to 1.7% in Q2 (around 7.0% annualized).
Growth also strengthened in the United States from 1.2% annualized
in Q1 to 3.0% in Q3 (third quarter) and the euro area (from 2.2% in
Q1 to 2.6% in Q2).
Stronger growth particularly in China and the United States boosted
demand for imports, which spurred intra- Asia trade as demand was
transmitted through regional supply chains.
Chinese demand in the first half of 2017 was driven by solid growth
in industry (up 6.4% in real terms for the year to date) and even
stronger growth in services (up 7.7% over the same period).
Financial conditions in Asia also improved compared to the volatile
first quarter of 2016, contributing to business and consumer confidence,
said the WTO.
"The partial recovery of oil prices in 2017 also appears to have
provided some support for investment in the United States, growth
of which slowed abruptly in 2016 - particularly in the energy sector
- but has picked up in the first half of this year."
The WTO economists however pointed out that the rapid pace of trade
growth in 2017 is unlikely to be sustained next year for a number
First, trade growth in 2018 will not be measured against a weak base
year, as is the case this year.
Second, monetary policy is expected to tighten in developed countries
as the Federal Reserve gradually raises interest rates in the United
States and the European Central Bank looks to phase out quantitative
easing in the euro area.
Third, fiscal expansion and easy credit in China are likely to be
reined in to prevent the economy from over-heating.
All of these factors should contribute to a moderation of trade growth
in 2018 to around 3.2% (the full range of the estimate being from
1.4% to 4.4%), they said.
World trade rose 4.2% year-on-year in the first half of 2017 compared
to the same period in the previous year.
Developed economies' exports were up 3.1% over the same period while
those of developing economies were up 5.9%.
Meanwhile, imports were up 2.1% in developed countries and 6.9% in
developing economies in the first half of the year.
Exports and imports were up in the first half of 2017 compared to
the same period last year in all regions tracked by WTO short-term
trade statistics except for South America, where trade was essentially
North American exports and imports were up 4.9% and 3.9% year-on-year
during this period. Exports of South America were down 0.7% while
imports were up 1.0%.
In Europe, exports grew 2.6% while imports rose 1.2%. Exports of Asia
rose 7.3% while the region's imports jumped 8.9% thanks in large part
to strong increases in China.
"Other regions", comprised of Africa, the Middle East and
the CIS (Commonwealth of Independent States), saw flat export growth
of 0.1% in volume terms mostly due to the fact that demand for oil
and other natural resources tends to be very stable.
On the other hand, imports of these regions were collectively up 2.5%
thanks to a partial recovery in prices for primary commodities.
Oil prices were up 21.8% year-on-year in the first half of 2017, boosting
export revenues of resource-producing regions. However, prices remain
low by recent historical standards, with Brent Crude at $53.25 per
barrel on 11 September, well below the $100 per barrel that prevailed
before July 2014, the WTO economists noted.
Referring to its revised trade forecasts for 2017 and 2018, the WTO
said if these estimates are realized, 2017 will see developing economies
outpace developed economies in trade volume growth on both the export
and import sides.
It will also be the first year since 2013 in which imports of developing
economies will have grown faster than those of developed countries.
"Whether this rebound marks an end to the so-called emerging
market slowdown remains to be seen," said the WTO economists.
A robust Chinese economic recovery has boosted import demand and stimulated
trade between China and its Asian trading partners in 2017, but the
pace of Chinese growth is expected to moderate progressively in 2018
Meanwhile, other developing regions continue to stagnate, they said,
noting on the other hand that Brazil should see growth in its imports
and GDP turn positive in 2017 but South America as a whole will continue
to register weak trade and GDP growth.
Trade growth for 2017 has been revised upward for North America on
both the export side (from 3.2% to 4.2%) and import side (from 3.0%
to 4.1%) while estimates have been scaled back for European exports
(from 2.8% to 2.5%) and imports (from 2.9% to 2.4%).
The biggest upgrades were for Asia, which should see its exports and
imports advance to 7.0% and 6.7%, respectively, in 2017.
Previous estimates (2.5% for exports and 3.2% for imports) suggested
a further weakening of the relationship between world trade and GDP
but this seems to have been premature. The ratio of world trade growth
to world GDP growth, referred to by economists as the "elasticity"
of trade, should rebound to 1.3:1 in 2017.
"Risks to the forecast are firmly tilted to the downside. Anticipated
shifts in the stance of monetary policy in developed countries could
provoke large changes in prices and exchange rates that would strongly
influence international trade patterns," the WTO economists cautioned.
"Renegotiation of the North American Free Trade Agreement (NAFTA)
and negotiation of post-Brexit trade arrangements between the United
Kingdom and the European Union could also unsettle global and regional
They further said rising geopolitical tensions, most notably in Asia,
could have extremely negative consequences for the world economy that
would be difficult to gauge in advance.
Finally, natural disasters including hurricanes in the United States
could have a significant but temporary impact on trade in the short-run.
Over the longer term, the rebalancing of China's economy away from
manufacturing and toward services may weigh on global import demand
for some time.
Services, which give rise to lower demand for imports than manufacturing,
have seen their share in Chinese value added rise from 43% in 2008
to 54% today.
"Although this rebalancing may cause Chinese imports to moderate,
these changes should promote stronger and more sustainable growth
in the long run," said the WTO economists.