WTO forecasts slowest trade growth since 2009

The World Trade Organization (WTO) said world trade will grow more slowly than expected in 2016, expanding by just 1.7%, well below the WTO’s April forecast of 2.8%.

The forecast for 2017 has also been revised, with trade now expected to grow between 1.8% and 3.1%, down from the previous WTO estimate of 3.6%.

With expected global GDP growth of 2.2% in 2016, the WTO said this year would mark the slowest pace of trade and output growth since the financial crisis of 2009.

WTO Director-General Roberto Azevêdo said the slowing of trade growth should serve as a “wake-up call” amid growing anti-globalization sentiment.

Meanwhile, the International Monetary Fund warned that a new IMF study found the slowdown in trade growth since 2012 was largely because of weak growth — but also fewer trade deals and a recent rise in protectionism.

The WTO downgrade follows a sharper than expected decline in merchandise trade volumes in the first quarter, -1.1% quarter-on-quarter, as measured by the average of seasonally-adjusted exports and imports, and a smaller than anticipated rebound in the second quarter (+0.3%).

The contraction was driven by slowing GDP and trade growth in developing economies such as China and Brazil but also in North America, which had the strongest import growth of any region in 2014-15 but has decelerated since then.

The WTO’s Azevêdo said: “The dramatic slowing of trade growth is serious and should serve as a wake-up call.

“It is particularly concerning in the context of growing anti-globalization sentiment.

“We need to make sure that this does not translate into misguided policies that could make the situation much worse, not only from the perspective of trade but also for job creation and economic growth and development which are so closely linked to an open trading system.

“While the benefits of trade are clear, it is also clear that they need to be shared more widely.

“We should seek to build a more inclusive trading system that goes further to support poorer countries to take part and benefit, as well as entrepreneurs, small companies, and marginalised groups in all economies.

“This is a moment to heed the lessons of history and re-commit to openness in trade, which can help to spur economic growth.”

The WTO said the latest figures underline a recent weakening in the relationship between trade and GDP growth.

Over the long term, trade has typically grown at 1.5 times faster than GDP, though in the 1990s world merchandise trade volume grew about twice as fast as world real GDP at market exchange rates.

In recent years however, the ratio has slipped towards 1:1, below both the peak of the 1990’s and the long-term average.

If the revised projection is accurate, 2016 will be the first time in 15 years that the ratio between trade growth and world GDP has fallen below 1:1.

The WTO said that since its April 2016 forecast was issued, some important downside risks had materialized, most notably a period of financial turbulence that affected China and other developing market economies early in the year.

“The outlook for the remainder of this year and next year is affected by a number of uncertainties, including financial volatility stemming from changes in monetary policy in developed countries, the possibility that growing anti-trade rhetoric will increasingly be reflected in trade policy, and the potential effects of the Brexit vote in the United Kingdom, which has increased uncertainty about future trading arrangements in Europe, a region where trade growth has been relatively strong,” said the WTO.

“The UK referendum result did not produce an immediately observable downturn in economic activity as measured by industrial production or employment; the main impact was a 13% drop in the exchange rate of the pound against the US dollar and an 11% decline in its value against the euro.

“Effects over the longer term remain to be seen.

“Economic forecasts for the UK in 2017 range from fairly optimistic to quite pessimistic.

“Our forecast assumes an intermediate case, with a growth slowdown next year but not an outright recession.”

The WTO said its biggest downward revision to imports from its April forecast for 2016 applies to South America (-8.3% compared to -4.5% previously) as the recession in Brazil intensified.

This was followed by North America, where import growth was revised down from 4.1% to 1.9% as GDP growth came in below earlier projections.

Asian import growth was also scaled back to 1.6% from 3.2%, while the WTO forecast for Europe was revised upward from 3.2% to 3.7%.