Citing the ongoing economic slowdown in China and waning U.S. imports, the World Trade Organization on Tuesday slashed its 2016 global trade forecast to 1.7 percent from a previous projection of 2.7 percent growth this year.
World trade for 2016 will grow at the slowest pace since the financial crisis of 2009, according to the latest report from the World Trade Organization (WTO).
The Geneva, Switzerland-based intergovernmental organization on Tuesday slashed its 2016 global trade forecast to 1.7 percent from a previous projection of 2.8 percent growth this year due to ongoing concerns of an economic slowdown in China and several major developing economies, as well as waning import demand in the United States.
Real global gross domestic product (GDP) is expected to grow 2.2 percent in 2016 at market exchange rates, also the slowest rate since the 2009 recession.
According to WTO figures, import demand in developing economies fell 3.2 percent during the first three months of 2016, but saw a “partial recovery” of 1.5 percent in the second quarter. By comparison, developed economies saw 0.8 percent growth in the first quarter, but negative 0.8 percent growth in the second.
Overall, worldwide trade volumes slipped 1 percent in Q1 before rising 0.2 percent in Q2, which “translated into weak demand for exports of both developed and developing economies,” said WTO. Year-to-date, world trade growth has been “essentially flat,” with the average of exports and imports in the first half declining 0.3 percent from the same 2015 period.
Exports from developed countries are now expected to grow 2.1 percent in 2016, compared with 1.2 percent growth in developing economies this year, while import volumes in developed and developing economies are expected to increase 2.6 percent and 0.4 percent, respectively, according to the organization.
WTO downgraded its export growth projection for “most regions,” with the largest revisions coming in Asia – 0.3 percent compared to 3.4 percent in April – and North America – 0.7 percent compared to 3.1 percent.
Export growth in South America, on the other hand, is expected to be stronger than previously forecast, up from 1.9 percent previously to 4.4 percent, thanks to “favorable exchange rate movements.”
However, the biggest downward revision to imports from WTO’s April forecast for 2016 came in South America – 8.3 percent compared to negative 4.5 percent previously – due to the growing economic recession in Brazil. This was followed by North America, where import growth was revised down from 4.1 percent to 1.9 percent as GDP grew less than initially projected. Asian import growth was also downgraded, from 3.2 percent to 1.6 percent, while WTO’s forecast for Europe was revised upward, from 3.2 percent to 3.7 percent.
WTO projected trade in 2017 will grow between 1.8 percent and 3.1 percent, depending on “potential changes in the relationship between trade and output,” down from 3.6 percent previously. This was the first time WTO provided a projection range, rather than a specific figure, a reflection of the difficulty forecasting trade growth caused by an increase of the number of systematically important trading countries and a shift in the ratio between trade and GDP growth.
The organization attributed the cut in its trade and GDP forecasts primarily to slowing growth in China, Brazil and North America, which had the strongest import growth of any region in 2014 and 2015, but has since decelerated.
WTO Director General Roberto Azevêdo said in a statement the “dramatic” slowdown in global trade growth should be seen as a “wake-up call,” especially given the “context of growing anti-globalization sentiment.” This was likely a reference to recent failed attempts to finalize international free trade agreements such as the sweeping 12-nation Trans-Pacific Partnership (TPP).
During the run up to the November U.S. presidential elections, the nominees for both parties, Donald Trump and Hillary Clinton, as well as several other primary candidates, voiced their opposition to the TPP, setting a decidedly protectionist tone.
“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,” said Azevêdo.
“While the benefits of trade are clear, it is also clear that they need to be shared more widely,” he added. “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.”
In addition, the organization noted the downward revisions mark the first time since 2001 that economic growth is expected to outpace international trade growth.
“The latest figures are a disappointing development and underline a recent weakening in the relationship between trade and GDP growth,” said WTO. “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.”
WTO said changes in import demand, the absence of trade liberalization, creeping protectionism, a contraction of global value chains, and the increasing role of the digital economy and e-commerce, have all likely played a role in the decline of the ratio of trade to GDP growth in recent years.
“Whatever the cause, the recent run of weak trade, and economic, growth suggests the need for a better understanding of changing global economic relationships,” it said. “The WTO, and other international organizations, are working hard to understand this current evolution and its implications for continued growth.”
WTO cuts 2016 global trade forecast
