Escalating trade tensions and tighter credit market conditions in important markets will slow trade growth for the rest of this year and in 2019, World Trade Organization (WTO) economists forecast, as they downgrade their outlook on the back of increasing risk.
Trade will continue to expand but at a more moderate pace than previously forecast. The WTO anticipates growth in merchandise trade volume of 3.9% in 2018, with trade expansion slowing further to 3.7% in 2019.
The new forecast for 2018 is below the WTO’s 12 April estimate of 4.4% but falls within the 3.1% to 5.5% growth range indicated at that time. Trade growth in 2018 is now most likely to fall within a range from 3.4% to 4.4%, the economists predict.
Most notably a rise in actual and proposed trade measures targeting a variety of exports from large economies are to blame. The direct economic effects of these measures have been modest to date but the uncertainty they generate may already be having an impact through reduced investment spending. Monetary policy tightening in developed economies has also contributed to volatility in exchange rates and may continue to do so in the coming months, according to the WTO.
“While trade growth remains strong, this downgrade reflects the heightened tensions that we are seeing between major trading partners,” says WTO director general Roberto Azevêdo. “More than ever, it is critical for governments to work through their differences and show restraint. The WTO will continue to support those efforts and ensure that trade remains a driver of better living standards, growth and job creation around the globe.”
The updated trade forecast is based on expectations of world real GDP growth at market exchange rates of 3.1% in 2018 and 2.9% in 2019. This implies a ratio of trade growth to GDP growth of 1.3 in both years.
In the first half of 2018, North America had the fastest export growth and Asia had the strongest import growth, while resource-based economies still struggled.
World merchandise trade was up 3.8% in the six months compared to the same period in the previous year. Exports of developed economies rose 3.5% during the same period while shipments from developing economies increased by 3.6%.
All geographical regions recorded positive year-on-year trade growth in both exports and imports in the first half, but some regions performed better than others. North America saw the fastest export growth during this period at 4.8%, followed by Asia at 4.2% and Europe at 2.8%.
But the WTO warned that trade policy measures are far from the only risk to the forecast. Developing and emerging economies could experience capital outflows and financial contagion as developed countries raise interest rates, with negative consequences for trade.
Geopolitical tensions could also threaten resource supplies and upset production networks in certain regions, while structural factors such as the rebalancing of the Chinese economy away from investment and toward consumption are still present and could weigh on import demand due to the high import content of investment.