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Info Service on WTO and Trade Issues (Mar26/24) Geneva, 20 Mar (D. Ravi Kanth) — Global merchandise trade growth is expected to plummet to 1.9% this year, from 4.6% in 2025, amid the escalating conflict in the Middle East, according to the latest data released by the World Trade Organization on 19 March. The situation is causing severe economic strain across countries, including high crude oil and liquefied natural gas (LNG) prices and acute fertilizer shortages, according to the WTO’s Global Trade Outlook and Statistics. Combined, goods and services trade will grow by 2.7% in 2026, down from 4.7% in 2025. Global GDP growth is projected to moderate slightly from 2.9% in 2025 to 2.8% in both 2026 and 2027. While there is hope for a surge in trade of AI-enabling products, which remain somewhat insulated from worsening economic and trade conditions and growing uncertainty, there is little cause for optimism about economic and trade developments in 2026, according to the WTO data. WTO economists claim that the overall negative impact of tariffs in 2025 was less than predicted due to the suspension of new United States tariffs until August, limited retaliation from other economies, and numerous tariff exemptions. However, several studies suggest that labour-intensive exports – particularly from South Asian countries like India – could suffer significant losses. WTO Director-General Ms. Ngozi Okonjo-Iweala appeared somewhat restrained, stating: “The outlook reflects the resilience of global trade, buoyed by trade in high-technology products and digitally delivered services, adaptations in supply chains, and the avoidance of tit-for-tat retaliation on tariffs.” “However,” she said, “this baseline forecast is under pressure from the conflict in the Middle East,” noting that “sustained increases in energy prices could increase risks for global trade, with potential spillovers for food security and cost pressures on consumers and businesses.” Without naming the US, which has reportedly disrupted rules-based global trade over the past year, the DG said: “Nevertheless, WTO members can help cushion the impact and ease the economic burden on people worldwide by maintaining predictable trade policies and strengthening supply chain resilience.” In the rather subdued analysis that followed on the state of the global trading system – where trade in AI-enabling products is seen as a silver lining – WTO economists said the ongoing conflict in the Middle East could further reduce trade growth if energy prices remain high. They noted that this would also strain food supplies and services trade due to travel and transport disruptions. The WTO economists observed, somewhat cautiously, that “prospects could still improve if the conflict ends quickly and the boom in AI spending continues.” Even though the AI boom – largely driven by Google, Amazon, Facebook, and Apple, plus Microsoft and a few Chinese companies – appears to be disrupting labour markets through mass layoffs worldwide, it remains unclear how this trend is viewed positively, according to several economic analysts and commentators. With AI trade dominating global commerce, WTO economists project that world merchandise trade volume will grow by 2.6% in 2027. As goods trade bears the brunt of the ongoing conflict, there appears to be a growing emphasis on commercial services trade growth, which “will ease to 4.8% in 2026 after this year’s 5.3% rise, then accelerate again to 5.1% in 2027.” The WTO economists argued that if crude oil and liquefied natural gas (LNG) prices remain elevated throughout 2026, it could reduce the GDP forecast for that year by 0.3 percentage points. This would, in turn, lower the trade forecast by 0.5 percentage points this year and up to 1.0 percentage point for energy-import-dependent regions. Under such a high-energy-price scenario, merchandise trade volumes could grow by just 1.4%. Services trade would also slow to 4.1% growth in 2026. STRAIT OF HORMUZ According to the WTO economists, beyond fuels, a blockade in the Strait of Hormuz – a 50-kilometre-wide waterway – has disrupted fertilizer supplies vital to global agriculture. Approximately one-third of the world’s fertilizer exports typically pass through this route. Major agricultural producers such as India, Thailand, and Brazil rely on the Gulf for 40%, 70%, and 35% of their urea imports, respectively. Gulf countries also face food security challenges, with import dependency averaging 75% for rice and exceeding 90% for corn, soybeans, and vegetable oil – commodities that would incur higher costs if routed through alternative passages, according to the commentary accompanying the data. Even if the conflict is short-lived, recovery from the damage caused by the war – initiated by the United States and Israel – could take several years, a Qatari official said, estimating that repairs to their largest gas field could take at least four to five years. AI SPENDING The WTO economists note some upside potential if the conflict is brief and AI-related spending remains robust through 2026 and into 2027. In that case, merchandise trade growth could be boosted by 0.5 percentage points, reaching as high as 2.4% this year and 2.7% next year. According to the economists, it is also possible that both upside and downside risks materialize simultaneously – with energy prices remaining high and AI-enabling goods trade continuing to surge. In this scenario, merchandise trade growth in 2026 might align more closely with the baseline forecast. In their review of trade in 2025, the WTO economists noted that world merchandise trade volume increased by 4.6%, based on data available as of 10 March, which remains subject to revision. They said that trade growth last year exceeded the 2.4% increase projected in the October 2025 release of the Global Trade Outlook and Statistics, but was close to the underlying baseline projection. The WTO economists appeared to praise the AI sector and its enabling goods, stating that a surge in demand for such products offset the negative impact of higher tariffs and uncertainty on global trade. Divorced from the ongoing adverse effects of AI technologies on the labour market, the WTO economists reported that in value terms, trade in AI-enabling goods rose by 21.9% year-on-year, increasing to $4.18 trillion in 2025 from $3.43 trillion the previous year. These products accounted for 42% of total global trade growth in 2025, despite representing only one-sixth of global trade. Notably, key AI-enabling goods such as chips, semiconductors, and data transmission equipment are exempt from most new tariffs. For 2026, the WTO economists said recent tariff changes largely reflect adjustments in approach rather than fundamental policy shifts. In a special analytical chapter, the WTO economists estimated that the share of world trade conducted on a most-favoured-nation (MFN) basis stood at 72% by the end of February 2026, after fluctuating throughout 2025 amid unprecedented policy shifts. They said the analysis confirms that MFN tariffs remain the dominant framework governing international trade across most sectors of the global economy. REGIONAL PROJECTIONS According to the WTO economists, under the baseline scenario, Asia is expected to record the fastest merchandise import growth in 2026 (3.3%), followed by Africa (3.2%), South America (2.5%), Europe (1.3%), and the Middle East (1.0%). North America’s merchandise imports would remain nearly flat (0.3%) in this scenario, while those of the Commonwealth of Independent States (CIS) region would contract (-2.0%). On the export side, Asia and South America would lead with 3.5% growth each, followed by North America (1.4%), the CIS (1.3%), and Africa (1.2%). In contrast, merchandise exports from the Middle East would slow sharply (0.6%), while Europe’s would continue to stagnate (0.5%). The least-developed countries are expected to see 4.5% merchandise import growth and 2.9% export growth in 2026 under the baseline scenario. Under the high-energy-price scenario, net fuel-importing regions such as Asia and Europe would face the sharpest declines in merchandise import growth between the high energy price and baseline scenarios. Net fuel exporters that are able to export would generally benefit from higher income and thus stronger import growth. SERVICES TRADE In commercial services trade, a deceleration is expected in 2026, with growth declining from 5.3% in 2025 to 4.8% in 2026. Services trade is projected to increase by 5.1% in 2027, according to the baseline forecast. The WTO economists noted that in an adjusted scenario incorporating revised GDP assumptions that take into account the impact of the Middle East conflict, services trade would expand more slowly (4.1%) in 2026 before recovering to 5.2% in 2027 – a loss of 0.7 percentage points for 2026. According to the WTO economists, the Middle East conflict threatens critical global transport corridors, with traffic through the Strait of Hormuz collapsing from 138 commercial vessels per day to nearly zero. The region accounts for 7.4% of global transport services exports and serves as a key hub connecting Europe, Asia, and Africa. Disruptions have already led to the cancellation of over 40,000 flights and increased transport and insurance costs. The WTO economists said that while a short-lived conflict would likely result in temporary disruptions with a quick recovery, a protracted crisis could trigger structurally higher fuel and transport costs, reduced trans-shipment activity, and shifts in global travel and trade patterns toward alternative routes. +
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