WTO sees global trade growth decelerating to 2.6% in 2019

WTO economists expect global merchandise trade volume growth to fall to 2.6 per cent in 2019, from 3.0 per cent in 2018. Trade growth could then rebound to 3.0 per cent in 2020, depending, however, on an easing of trade tensions, it said.

Trade growth in 2018 was weighed down by several factors, including new tariffs and retaliatory measures affecting widely-traded goods, weaker global economic growth, volatility in financial markets and tighter monetary conditions in developed countries, among others. Consensus estimates have world GDP growth slowing from 2.9 per cent in 2018 to 2.6 per cent in both 2019 and 2020, WTO said.

"With trade tensions running high, no one should be surprised by this outlook. Trade cannot play its full role in driving growth when we see such high levels of uncertainty. It is increasingly urgent that we resolve tensions and focus on charting a positive path forward for global trade which responds to the real challenges in today's economy – such as the technological revolution and the imperative of creating jobs and boosting development,” WTO Director-General Roberto Azevedo said. 

“If we forget the fundamental importance of the rules-based trading system we would risk weakening it, which would be an historic mistake with repercussions for jobs, growth and stability around the world," he added.

The preliminary estimate of 3.0 per cent for world trade growth in 2018 is below the WTO’s most recent forecast of 3.9 per cent issued last September. The shortfall is mostly explained by a worse-than-expected result in the fourth quarter, when world trade as measured by the average of exports and imports declined by 0.3 per cent. Until then, third quarter trade had been up 3.8 per cent, in line with WTO projections.

Nominal trade values rose in 2018 due to a combination of volume and price changes. World merchandise exports totalled $19.48 trillion, up 10 per cent from the previous year. The rise was driven partly by higher oil prices, which increased by roughly 20 per cent between 2017 and 2018. The value of commercial services trade rose nearly as much, with exports totalling $5.80 trillion in 2018, up 8 pe cent from the previous year. 

There were few changes in export and import rankings among major traders in terms of dollar values.  

The fastest merchandise export growth in nominal terms was recorded by oil producers, including the Kingdom of Saudi Arabia (34.8 per cent) and the Russian Federation (25.6 per cent). Merchandise import values increased most for Indonesia (20.2 per cent), Brazil (19.8 per cent), China (15.8 per cent) and Viet Nam (15.4 per cent). 

Among commercial services traders, China recorded strong increases in the value of its exports (17 per cent) and imports (12 per cent). India also recorded double digit growth in commercial services trade on both the export side (11 per cent) and the import side (14 per cent).

WTO said its current trade forecast downgraded GDP projections for North America, Europe and Asia, mostly due to macroeconomic considerations, including the diminishing effect of expansionary fiscal policy in the United States, the phase-out of monetary stimulus in the euro area and the ongoing economic rebalancing of the Chinese economy away from manufacturing and investment and toward services and consumption. 

WTO said the impact of trade tensions on actual trade flows is difficult to quantify since it depended on the nature of any proposed measures and whether they are implemented or only threatened. Threatened measures can still have real effects by increasing uncertainty and discouraging investment, it added.

In a worst case scenario in which international cooperation on tariffs breaks down completely and all countries set tariffs unilaterally, WTO economists expect a reduction in world GDP in 2022 of about 2 per cent and a reduction in global trade of about 17 per cent compared to baseline projections.

Other risks to the trade outlook are more difficult to quantify. For example, the effects of Brexit will depend on the nature of any agreement that might be reached between the United Kingdom and the European Union, with impacts mostly confined to these economies. Lower investment in the U.K. is likely in most foreseeable Brexit scenarios, which would tend to reduce productive capacity over time.

Developments in 2018

According to WTO, the slowdown in merchandise trade volume growth in 2018 was broad based, reflecting weaker import demand in both developed and developing countries, although some regions were more strongly affected than others.

Weakness was most evident in the fourth quarter of 2018, when export volumes declined by 0.1 per cent and import volumes dropped 0.5 per cent. On the export side, the slowdown was mostly due to reduced shipments from developed countries, which contracted year-on-year in three out of the four quarters of 2018. On the import side, developed countries recorded slow growth throughout the year, particularly in the first half. Developing economies saw imports fall sharply (-2.1 per cent) in the final quarter despite stronger growth earlier in the year, WTO pointed out.

The deceleration of trade in 2018 was driven primarily by Europe and Asia due to their large share in world imports (37 per cent and 35 per cent, respectively). After recording strong increases in 2017, Asia saw its trade growth moderate in 2018. Meanwhile, Europe's exports stagnated throughout the year while its imports declined gradually.

And, despite heightened trade tensions, a buoyant US economy contributed to strong import growth of 5.0 per cent in 2018. "Other regions", encompassing Africa, the Middle East and Commonwealth of Independent States saw export growth accelerate to 2.7 per cent. South America's trade flows have continued to recover gradually but have been buffeted by weaker external demand and domestic economic shocks.

World commercial services trade recorded strong growth in 2018 for the second consecutive year. Goods related services registered the strongest expansion, with a 10.6 per cent increase in current dollar terms. The weakest growth was in transport, which rose by 7.1 per cent. Commercial services overall grew 7.7 per cent in 2018.

WTO’s forward-looking trade indicators have turned negative in recent months, including the WTO's World Trade Outlook Indicator (WTOI). 

WTO’s index of economic policy uncertainty, mostly based on the frequency of press reports, has risen consistently over time, peaking at 341 in December 2018, coinciding with the US government shutdown and US trade negotiations with China. To the extent that economic uncertainty deters investment, WTO said, it can have a negative impact on trade since capital goods tend to have high import content. Conversely, a lowering of trade tensions would be expected to stimulate both investment and trade.

If current GDP forecasts are realised, the WTO expects the volume of world merchandise trade to grow by 2.6 per cent in 2019, with stronger expansion in developing economies (3.4 per cent for exports, 3.6 per cent for imports) than in developed ones (2.1 per cent for exports, 1.9 per cent for imports). World trade growth should pick up slightly in 2020 to 3.0 per cent, with growth in developing economies (3.7 percent for exports, 3.9 percent for imports) again outpacing developed countries (2.5 per cent for exports, 1.9 per cent for imports). Most risks remain firmly on the downside, with upside potential hinging on a relaxation of trade tensions, WTO added.