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Info Service on WTO and Trade Issues (Apr23/06) Geneva, 5 Apr (D. Ravi Kanth) — Global trade is expected to decelerate to 1.7% in 2023 from 2.7% last year due to multiple factors ranging from the war in Ukraine, continued high inflation, ultra-conservative monetary policies and financial market uncertainty, said economists at the World Trade Organization on Wednesday. Interestingly, in releasing the WTO’s new “Global Trade Outlook and Statistics” report, the WTO economists projected that global trade could increase to 3.2%, while acknowledging that there is an element of “uncertainty” and marked headwinds attached to the overall performance in 2024. The economists admitted that “risks to the forecast are tilted to the downside, including geopolitical tensions, food insecurity, potential financial (in)stability stemming from monetary policy tightening, and increasing levels of debt.” However, the economists failed to suggest how global trade is being impacted by the inexorable fragmentation of the multilateral trading system (MTS) into security-driven blocs like the ones led by the United States through “re-shoring”, “friend-shoring”, the Indo-Pacific Economic Forum, as well as the continued disruption of global supply chains, said analysts familiar with the WTO report. While the trade ministers of the Group of Seven (G7) industrialized countries – the United States, Canada, Germany, France, Italy, the United Kingdom, and Japan – in the presence of the WTO’s Director-General Ms Ngozi Okonjo-Iweala, said on Tuesday that they remain committed to the multilateral trading system and the strengthening of the WTO, their actions on the ground in resorting to the apparent partition of the multilateral trading system, akin to the partition of the African continent by the major Western powers in 1884-85, remains a grave concern, said an analyst. Perhaps, the above ills of the global trading system seem to be carpeted under the so-called “geopolitical tensions”. The other main bullet points of the WTO report are that trade volume growth in 2022 “was slower than expected at 2.7% following a fourth-quarter slump, but still stronger than the worst-case scenarios considered at the start of the war in Ukraine.” Earlier, the WTO economists suggested that food supplies and prices showed an unexpected resilience despite the war that began in Ukraine on 24 February 2022. In their report released on Wednesday, the economists argued that “goods trade was more resilient than expected for most of 2022 despite the drag exerted by the war between Russia and Ukraine.” They maintained that volume growth in merchandise trade averaged 4.2% in the first three quarters of 2022, “before a 2.4% quarter-on-quarter decline in the fourth quarter” that dragged down growth for the year. They admitted that “the final result for 2022 was weaker than the WTO’s October forecast of 3.5%,” while suggesting that it was close to the earlier estimate of 3% from last April, which relied on simulations to gauge the economic impact of the war. Another important facet of the global trade performance in 2022 was that merchandise trade grew at 12% in value terms to US$25.3 trillion, “inflated in part by high global commodity prices.” The economists reported that “the value of world commercial services trade increased 15% in 2022 to US$6.8 trillion” in which “digitally-delivered services exports were worth US$3.82 trillion.” Against this backdrop, “trade continues to be a force for resilience in the global economy, but it will remain under pressure from external factors in 2023,” the WTO’s director-general Ms Ngozi Okonjo-Iweala said. Without naming these governments, she emphasized that “this makes it even more important for governments to avoid trade fragmentation and refrain from introducing obstacles to trade.” The DG said investing in multilateral cooperation on trade, as WTO members did at the Twelfth Ministerial Conference (MC12) last June, “would bolster economic growth and people’s living standards over the long term.” Yet, after more than nine months, the outcomes of the fisheries subsidies negotiations and on extending the MC12 Ministerial Decision on the TRIPS Agreement to diagnostics and therapeutics, seem somewhat stuck. So far, only three countries – Switzerland, Singapore, and the Seychelles – have deposited their instruments of acceptance of the protocol to the first part of the Fisheries Subsidies Agreement. So, it may be a bit premature to say that MC12 “would bolster economic growth and people’s living standards over the long term”, as the famous economist John Maynard Keynes once said somewhat prophetically that “in the long run we are all dead.” According to a WTO press release announcing the launch of the WTO report, WTO Chief Economist Ralph Ossa said: “The lingering effects of COVID-19 and the rising geopolitical tensions were the main factors impacting trade and output in 2022 and this is likely to be the case in 2023 as well. Interest rate hikes in advanced economies have also revealed weaknesses in banking systems that could lead to wider financial instability if left unchecked. Governments and regulators need to be alert to these and other financial risks in the coming months.” FACTORS RESPONSIBLE FOR POOR GROWTH IN Q4 2022 According to the WTO economists, “several factors contributed to the trade slump in the fourth quarter of 2022, the most conspicuous being the rise in global commodity prices.” Explaining the overall performance in the last quarter, WTO economist Mr Coleman Nee pointed out that although food and energy prices receded from their post-conflict peaks by Q4, they remained high by historical standards and continued to erode real incomes and import demand. He suggested that COVID-19 infections in China during the last quarter of 2022 had a major impact on the Chinese economy, resulting in a drop in China’s GDP by almost 0.4%. Also, “interest rate hikes in advanced economies may have succeeded in cooling demand by Q4 but they have also revealed weaknesses in banking systems that could lead to wider financial instability if left unchecked.” After years of following “expansionary monetary policy”, the central banks reversed their policies by attempting to strike “a balance between taming inflation, sustaining economic growth, and maintaining financial stability.” The WTO report noted that “miscalculation could have negative consequences for the global economy and trade.” Under the sub-heading of “drivers of trade volume,” the report said that “geopolitical tensions, inflation (and related measures), energy and other commodity prices, and the lingering effects of COVID-19 were the main drivers of trade and output in 2022.” It maintained that “last year saw some of the highest inflation rates since the 1980s together with massive swings in commodity prices and an appreciation of the US dollar.” REGIONAL PERFORMANCE According to the WTO report, “Europe’s expected GDP growth has been revised up by 0.7 percentage points while Asia’s has been revised down by 0.4 points.” Further, “stronger than expected GDP growth in Europe would stimulate intra-EU trade, which gives Europe extra weight in world totals.” WTO economist Mr Nee said that Europe’s exports are now projected to grow by 1.8% in 2023, up from the previous estimate of 0.8%, while “Europe’s imports are expected to decline by 0.6% this year, less than the previous estimate of -0.7%.” As regards North America, which is dominated by the performances of the US, Canada, and Mexico, the report forecast the “strongest merchandise export growth of any WTO region in 2023 (3.3%), followed by the CIS (2.8%), Asia (2.5%) and Europe (1.8%).” It said that “weaker export growth is expected in the Middle East (0.9%) and South America (0.3%) while Africa’s goods exports are expected to decline (-1.4%). WORLD MERCHANDISE TRADE The report said, “World merchandise trade as measured by the average of the dollar value of exports and imports rose 12% in 2022 to US$25.26 trillion.” However, according to the report, “this growth is slow compared to 2021 when merchandise trade recorded a 27% rebound following a 5.3% decline in 2020.” “In 2022, growth in fuel trade was 61%,” the report said, adding, “The dollar value of trade in agricultural products was up 11% last year while trade in manufactured goods rose 7%.” Among the manufactured goods, it said that “trade in automotive products increased by 6% while trade in clothing jumped 9%.” On the performance of services trade, the report said that “the value of trade in commercial services as measured by the average of exports and imports rose 15% in 2022 to US$6.8 trillion.” +
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