World trade is experiencing its slowest pace of trade and output growth since the financial crisis of 2009

World trade is experiencing its slowest pace of trade and output growth since the financial crisis of 2009

World trade will grow more slowly than expected in 2016 driven by lower GDP and trade growth in developing economies such as China and Brazil but also in North America, new estimates show. 

The forecast marks the slowest pace of trade and output growth since the financial crisis of 2009, according to the World Trade Organization (WTO). Expanding by just 1.7%, world trade growth is well below the April forecast of 2.8%, figures show. As such, the forecast for 2017 has been revised, with trade now expected to grow between 1.8% and 3.1%, down from 3.6% previously. 

The downgrade follows a sharper than expected decline in merchandise trade volumes in the first quarter of 1.1%, and a smaller than anticipated 0.3% rebound in the second quarter. 

In the first quarter, import demand of developing economies fell 3.2% before staging a partial recovery of 1.5% in the second quarter. Meanwhile, developed economies recorded positive import growth of 0.8% in first quarter and negative growth of 0.8% in the following.

Overall, world imports stagnated in the first half of 2016, translating into weak demand for exports of both developed and developing economies. For the year-to-date, world trade has been essentially flat, with the average of exports and imports in the first and second quarters declining 0.3% relative to last year.

This stagnation, the WTO says, disguises strong shifts at the regional level, the most striking of which is the steep decline in imports of resource-exporting regions over the last two years, driven by falling commodity prices and declining export revenues.  

South America and other regions – comprising Africa, the Middle East and the Commonwealth of Independent States – arrested their declines in the second quarter, while imports of North America and Europe both dipped in the latest quarter.

Meanwhile, Asian imports declined by 3.4% in the first quarter against a backdrop of concerns about slowing growth in China, before rebounding to 1.3% growth in the second quarter as concerns eased. The 3.3% decline in Asian exports in the first quarter mirrored the drop in Asia on the import side, but this was mostly reversed by a 3.2% rise in exports in the second quarter.

The WTO says the latest figures are a disappointing development and 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. In recent years, however, the ratio has slipped towards 1:1, below both the peak of the 1990s and the long-term average.

"The dramatic slowing of trade growth is serious and should serve as a wake-up call," says WTO director-general Roberto Azevêdo. "It is particularly concerning in the context of growing anti-globalisation sentiment. We need to make sure 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."

Azevêdo adds that while the benefits of trade are clear, a more inclusive trading system should be built that "goes further to support poorer countries to take part and benefit, as well as entrepreneurs, small companies, and marginalised groups in all economies". 

Looking to the second half, the WTO says there are indications trade may be picking up, but warns the pace of expansion is likely to remain subdued. While container port throughput has increased, US export orders have risen, and nominal trade flows in US dollar terms have stabilised, numerous risks remain. 

The WTO points to a number of uncertainties including financial volatility stemming from changes in monetary policy in developed countries, and the possibility growing anti-trade rhetoric will increasingly be reflected in trade policy. It also notes the potential effect of the Brexit vote in the UK has increased uncertainty about future trading arrangements in Europe, a region where trade growth has been relatively strong.  

According to WTO estimates, exports of developed countries are expected to outpace those of developing economies this year, with growth of 2.1% compared to 1.2%. On the import side, developing countries are expected to register sluggish growth of 0.4% compared to 2.6% for developed countries. 

Export growth has been downgraded for most regions, with the strongest revisions applied to Asia (0.3% compared to 3.4% in April) and North America (0.7% compared to 3.1%). Meanwhile, South America's export growth is expected to be stronger than previously forecast (4.4% compared 1.9%), thanks to favourable exchange rate movements. 

Looking to 2017, estimates of export growth range from 1.7% to 2.9% for developed countries and from 1.9% to 3.4% for developing economies. On the import side, developed countries could see trade growth of between 1.7% and 2.9% while developing countries are forecast to expand by between 1.8% and 3.1%. 

Merchandise trade volume and real GDP, 2012-2017 - Annual % change