World Bank: policy uncertainty ‘slowing trade growth’

The World Bank said in a new paper that economic policy uncertainty in Europe and the United States is contributing to a decline in world trade growth.

The bank said global trade growth continued to be slow for the fifth consecutive year, with 2016 showing the weakest trade performance since the 2008-2009 global financial crisis.

According to the new paper, preliminary data suggest that world merchandise trade grew by a little more than 1% in 2016, compared to 2% in 2015 and 2.7% in 2014.

The growth of services trade continued to be relatively resilient and recovered slightly following a decline in 2015.

The World Bank said the latest annual paper Global Trade WatchTrade Developments in 2016 pointed to a surge in economic policy uncertainty as a contributor to the 2016 decline in world trade growth.

The paper, which analyzed a sample of 18 countries over 30 years, found that the increase in uncertainty in 2016 may have reduced trade growth by 0.6 percentage points, which accounts for about 75% of the difference between trade growth rates in 2015 and 2016.

“Policy uncertainty in Europe and the United States had a negative impact on trade by reducing overall global growth,” according to the paper’s authors, World Bank Group Economists Cristina Constantinescu, Aaditya Mattoo and Michele Ruta.

“In a more uncertain environment, firms may choose to postpone investment and export decisions and consumers may cut back spending.

“The threat of unraveling trade agreements may also hurt trade growth by adding to policy uncertainty”.

The paper also offered new evidence linking slowing trade growth to slowing productivity growth.

“We are witnessing a decline in the growth of trade as well as productivity, and the slowing expansion of global value chains can help to explain both,” the authors said.