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Info Service on WTO and Trade Issues (Jun23/15) Penang, 22 Jun (Kanaga Raja) — Both trade in goods and trade in services rebounded in the first quarter (Q1) of 2023, according to the UN Conference on Trade and Development (UNCTAD). In its latest Global Trade Update, released on 21 June, UNCTAD, however, said global trade is projected to be weak in the second quarter (Q2) of 2023, as it is expected to remain at similar levels to Q1 2023, both for goods and services. UNCTAD also said that trade interdependence between China and the United States has decreased, amid global “friend-shoring” trends. GLOBAL TRADE TRENDS According to the UNCTAD report, during the first quarter of 2023, trade growth was positive for both goods and services. It said that after the downturn in the second half of 2022, trade in goods rebounded in Q1 2023, adding about US$100 billion from the fourth quarter (Q4) of 2022. Global growth in trade in services also rebounded and increased by about US$50 billion in Q1 2023, it added. UNCTAD said its “nowcast” suggests global trade to be weak in Q2 2023, as it is expected to remain at similar levels to Q1 2023, both for goods and services. Trade volumes resumed their growth in Q1 2023 and have returned to a pattern like that of trade values, said the report, adding that trade volumes are expected to slow down in Q2 compared to Q1 2023. It said following two consecutive quarters of decline, global trade in goods and services rebounded in Q1 2023, increasing by about 2 per cent relative to Q4 2022. Compared to Q4 2022, UNCTAD said global trade in goods increased by 1.9 per cent in Q1 2023, driven by a revival of economic activity in China, and by an increase in the trade of road vehicles and pharmaceuticals. “On the other hand, easing energy prices contribute to low global trade growth.” Global trade in services has remained resilient throughout 2022 and increased about 2.8 per cent in Q1 2023, said the report. “Part of this growth reflects the continuing rebound in tourism and travel following the COVID-19 pandemic,” it added. The current projection for Q2 2023 indicates a slowdown in global trade growth, said UNCTAD. Global economic forecasts have recently been revised downwards, and factors such as persistent inflation and, financial vulnerabilities, along with the ongoing war in Ukraine and geopolitical tensions, pose challenges to global trade, it added. Overall, the outlook for global trade in the second half of 2023 is pessimistic, as negative factors dominate the positive, said the report. POSITIVE AND NEGATIVE FACTORS According to UNCTAD, the positive factors affecting the outlook for global trade include the increasing demand for services, trade supporting the green transition, and shipping costs remaining low. Global commercial services are expected to continue growing in the second half of 2023, primarily driven by a rise in demand for information and communication technology (ICT) services and by the rebound in travel and tourism sectors, it said. The patterns of international trade are anticipated to become more closely tied to the transition towards a greener global economy, it further said. “Trade and industrial policies reflecting climate commitments would necessarily affect trade flows, especially in goods and services related energy efficient products and renewable energy production.” UNCTAD also said global shipping capacity remains strong, noting that the Shanghai containerized freight rate index has returned to pre-pandemic levels, and is expected to remain low throughout 2023. According to the report, the negative factors affecting the outlook going forward include geopolitical factors; a weakening global economy; a potential rise in trade restrictive measures; slowing industrial output; inflation and high commodity prices and interest rates; and concerns over debt sustainability. The war in Ukraine and geopolitical tensions remain the biggest factors impacting international trade thorough 2023, said UNCTAD. “Global economic forecasts are being revised downwards and economic growth in many countries is expected to remain below historical trends,” it noted. Persistent inward-looking policies in large economies could result in an increase in trade restrictive measures, which would hold back international trade growth, the report emphasized. UNCTAD said both China and the United States Purchasing Managers Index declined in May 2023, suggesting a decline in industrial production for the next quarters, adding that Chinese exports for May 2023 were also below expectations, signalling weak global demand for goods. It further said that many economies are expected to maintain relatively high interest rates as a result of ongoing inflationary pressures. It said despite a downward trajectory, commodity prices, particularly in the energy, food, and metals sectors, are projected to remain above pre-pandemic averages. The report also said the current record levels of global debt, coupled with high interest rates, will continue to negatively affect the macroeconomic conditions of many countries, adding that the economies with underlying vulnerabilities could see further increases in borrowing costs. Highlighting some trade trends in the major economies, UNCTAD said that merchandise trade growth has been mixed among the major economies during the last four quarters. “Brazil, India, United States and the European Union saw significant increases both in relation to their imports and exports.” On the other hand, other major economies’ trade growth was mixed and often negative, especially in relation to exports, it said. On a quarter-over-quarter basis, trade trends in Q1 2023 for the major economies have been more subdued, and in many cases negative, it said, adding that the notable exception is significant growth in exports for China and India. The report said due to the recovery from the COVID-19 pandemic, trade in services for most major economies was higher during the last 4 quarters. However, quarterly growth rates for Q4 2022 indicate that these positive trends have turned negative, with trade in services being considerably lower than in Q3 2022, it added. On a regional basis, UNCTAD said in average terms, recent trends in global trade are similar across developing and developed countries. On a yearly basis, both imports and exports of developing countries grew by an average of 6 per cent, it said. However, it said that when East Asian economies are excluded, yearly trade growth for developing countries was substantially higher, about 14 per cent. Figures on a quarter-over-quarter basis indicate that the trade stagnation was widespread during Q1 2023, the report added. Except for the region comprising the Russian Federation and central Asian economies, global trade growth has been positive on a yearly basis in all geographic regions, it said, adding, however, that trade growth in the East Asian region has been significantly below average. When considering trade growth on a quarter-over-quarter basis, Q1 2023 witnessed a decline in the value of trade in most regions, except for the Pacific region, North America, and Africa, said UNCTAD. However, trade growth in these regions was marginal during Q1 2023, it said, adding that similar patterns are observed in terms of intra-regional trade. Notably, it said during Q1 2023, trade growth within Africa showed a 3 per cent increase, outperforming other intra-regional trade. “FRIEND-SHORING” The report also said that during 2022 and Q1 2023, the geographical proximity of international trade remained relatively stable, suggesting a lack of significant near-shoring or far-shoring trends, at least on average. However, there has been a notable increase in the political proximity of trade since the latter part of 2022, the report added. “This indicates a reorientation of bilateral trade flows to prioritize countries that share similar political values (friend-shoring).” Concurrently, there has been a decline in diversification of trade partners, implying that global trade has become more concentrated among major trade relationships, said UNCTAD. The war in Ukraine, the decoupling of the United States-China trade relationship, and the consequences of Brexit have played a significant role in shaping key bilateral trade trends over the past four quarters, it added. These factors show in the changes of bilateral trade relationships among the interested economies and their main trading partners, said the report. At the sectoral level, UNCTAD said global trade trends over the past four quarters were influenced by several factors, but mainly by the energy sector, where the rise in energy prices resulted in higher trade values. “Other sectors experiencing trade increases were agri-food products, apparel, chemicals, and road vehicles.” Conversely, it said that trade declined in the office and communication equipment, and in the transport sectors, while on a quarterly basis, the value of trade in the energy sector experienced a reversal and declined in Q1 2023 relative to Q4 2022. “During the same period, the downward trend continued for trade in office and communication equipment.” On the other hand, trade increased for metals, chemicals, minerals, pharmaceuticals, and motor vehicles sectors, said UNCTAD. +
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