World trade to grow at lower than expected pace of 1.7% in 2016 and 1.8-3.1% in 2017
World trade will grow more slowly than expected in 2016, expanding by just 1.7%, well below the April forecast of 2.8%, according to the latest WTO estimates. The forecast for 2017 has also been revised, with trade now expected to grow between 1.8% and 3.1%, down from 3.6% previously. With expected global GDP growth of 2.2% in 2016, this year would mark the slowest pace of trade and output growth since the financial crisis of 2009.
The downgrade follows a sharper than expected decline in merchandise trade volumes in the first quarter (-1.1% quarter-on-quarter, as measured by the average of seasonally-adjusted exports and imports) and a smaller than anticipated rebound in the second quarter (+0.3%). The contraction was driven by slowing GDP and trade growth in developing economies such as China and Brazil but also in North America, which had the strongest import growth of any region in 2014-15 but has decelerated since then.
WTO Director-General Roberto Azevo said: “The dramatic slowing of trade growth is serious and should serve as a wake-up call. It is particularly concerning in the context of growing anti-globalization sentiment. We need to make sure that 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.
“While the benefits of trade are clear, it is also clear that they need to be shared more widely. We should seek to build a more inclusive trading system that goes further to support poorer countries to take part and benefit, as well as entrepreneurs, small companies, and marginalized groups in all economies. This is a moment to heed the lessons of history and re-commit to openness in trade, which can help to spur economic growth.”
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, though in the 1990s world merchandise trade volume grew about twice as fast as world real GDP at market exchange rates. In recent years however, the ratio has slipped towards 1:1, below both the peak of the 1990’s and the long-term average.
If the revised projection holds, 2016 will be the first time in 15 years that the ratio between trade growth and world GDP has fallen below 1:1. Historically strong trade growth has been a sign of strong economic growth, as trade has provided a way for developing and emerging economies to grow quickly, and strong import growth has been associated with faster growth in developed countries. However the increase of the number of systematically important trading countries and the shift in the ratio of trade and GDP growth makes it more difficult to forecast future trade growth. Therefore, the WTO is for the first time providing a range of scenarios for its 2017 trade forecast rather than giving specific figures. The current trend in the relationship between trade growth and world GDP is lower than observed over the last three decades.
Since the WTO’s April 2016 forecast was issued, some important downside risks have materialized, most notably a period of financial turbulence that affected China and other developing market economies early in the year, but which has since eased.
Import demand of developing economies fell 3.2% in Q1 before staging a partial recovery of 1.5% in Q2. Meanwhile, developed economies recorded positive import growth of 0.8% in Q1 and negative growth of -0.8% in Q2. Overall, world imports stagnated in the first half of 2016, falling 1.0% in Q1 and rising 0.2% in Q2. This translated 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 Q1 and Q2 declining 0.3% relative to last year.
These results are largely in line with the signals given by the WTO’s World Trade Outlook Indicator (WTOI), a new tool launched in July to provide real time information on trends in global trade. At that time the WTOI indicated that world merchandise trade might rebound in Q2 but would likely remain below trend.
The stagnation of world merchandise trade disguises strong shifts at the regional level. There is 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 Q2 of 2016 while imports of North America and Europe both dipped in the latest quarter. Meanwhile, Asian imports declined by 3.4% in Q1 against a backdrop of concerns about slowing growth in China, before rebounding to 1.3% growth in Q2 as these concerns eased. The 3.3% decline in Asian exports in Q1 mirrored the drop in Asia on the import side, but this was mostly reversed by a 3.2% rise in exports in Q2.