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February 20, 2019

Trade weakness seen extending into first quarter of 2019

By Beth Wright

Trade weakness is likely to extend into the first quarter of 2019, according to the latest WTO trade indicator, which also warns of the potential for a sharper slowdown should current trade tensions remain unresolved.

The latest reading of 96.3 from the World Trade Organization’s (WTO) World Trade Outlook Indicator (WTOI) is the lowest since March 2010 and is below the baseline value of 100 for the index, signalling below-trend trade expansion into the first quarter. 

Weakness in the overall index was driven by steep declines in the component indices, which appear to be under pressure from heightened trade tensions. 

Indices for export orders (95.3), international air freight (96.8), automobile production and sales (92.5), electronic components (88.7) and agricultural raw materials (94.3) have shown the strongest deviations from trend, approaching or surpassing previous lows since the financial crisis. Only the index for container port throughput remained relatively buoyant at 100.3, showing on-trend growth.

However, WTO notes temporary factors may have influenced some of the indices. Front-loading of imports ahead of anticipated US-China tariffs may have sustained container shipping to some extent, while technical problems in the German automotive sector may have contributed to weakness in automobile production and sales. It should be noted that below-trend growth in an index does not necessarily imply a decline in the underlying data, the intergovernmental organisation says.

The WTO downgraded its trade forecast last September amid escalating trade disputes and tighter credit market conditions. Trade growth is currently forecast to slow to 3.7% in 2019 from an expected 3.9% in 2018, but these estimates could be revised downward if trade conditions continue to deteriorate. Nevertheless, greater certainty and improvement in the policy environment could bring about a swift rebound in trade growth.

The WTO maintains that its Indicator is designed to provide “real time” information on the trajectory of world trade relative to recent trends, and not as a short-term forecast, although it does provide an indication of trade growth in the near future.

Its main contribution is to identify turning points and gauge momentum in global trade growth. Readings of 100 indicate growth in-line with medium-term trends; readings greater than 100 suggest above trend growth; while those below 100 indicate the reverse. 

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