Global trade growth likely to pick up in 2024: WTO

Supply chain fragmentation could threaten positive outlook of 2024

GENEVA: Global trade growth is expected to pick up in 2024 accompanied by slow but stable GDP growth. Sectors that are more sensitive to business cycles should stabilize and rebound as inflation moderates and interest rates start to come down, a report issued by World Trade Organization said. However, the WTO said signs are starting to emerge of supply chain fragmentation, which could threaten the relatively positive outlook for 2024.

”World trade and output slowed abruptly in the fourth quarter of 2022 as the effects of persistent inflation and tighter monetary policy were felt in the United States, the European Union and elsewhere, and as strained property markets in China prevented a stronger post COVID-19 recovery from taking root. Together with the consequences of the war in Ukraine, these developments have cast a shadow over the outlook for trade. The trade slowdown appears to be broad-based, involving a large number of countries and a wide array of goods,” the report said.

The share of intermediate goods in world trade, an indicator of global supply chain activity, fell to 48.5 percent in the first half of 2023, compared to an average of 51.0 percent over the previous three years. Furthermore, the share of Asian bilateral partners in US trade in parts and accessories — a key subset of intermediate inputs — fell to 38 percent in the first half of 2023, down from 43 percent in the same period of 2022.

WTO Director-General Ngozi Okonjo-Iweala said: “The projected slowdown in trade for 2023 is cause for concern, because of the adverse implications for the living standards of people around the world. Global economic fragmentation would only make these challenges worse, which is why WTO members must seize the opportunity to strengthen the global trading framework by avoiding protectionism and fostering a more resilient and inclusive global economy. The global economy, and in particular poor countries, will struggle to recover without a stable, open, predictable, rules-based and fair multilateral trading system.”

WTO Chief Economist Ralph Ossa said: “We do see some signs in the data of trade fragmentation linked to geopolitical tensions. Fortunately, broader de-globalization is not here yet. The data suggest that goods continue to be produced through complex supply chains, but that the extent of these chains may have plateaued, at least in the short run. Positive export and import volume growth should resume in 2024, but we must remain vigilant,” he said.

World commercial services trade is not covered by the forecast. However, preliminary data show that growth in the sector may be moderating following last year’s strong rebounds in transport and travel. World commercial services trade was up 9 percent year-on-year in the first quarter of 2023 compared to a 19 percent year-on-year rise in the second quarter of 2022. High commodity prices reduce real incomes but they also threaten low-income countries with food insecurity. Despite the recent easing of prices, in August 2023, the average price of food products was 46 percent higher than in 2019, while fertilizer prices were up 93 percent. Farmers could be forced to choose between using less fertilizer or planting fewer crops, both of which would reduce yields and increase the risk of hunger around the world. Declines in prices for food and energy have helped bring down headline inflation rates in many countries, but core inflation (excluding these volatile items) remains sticky. In August 2023, headline inflation in the United States dropped to 3.7 percent but core inflation was stuck at 4.3 percent.

Inflation was higher in the euro area (headline 5.2 percent, core 5.3 percent) and lower in Japan (headline 3.3 percent, core 2.8 percent), but in all cases it was above central bank targets. Some central bankers have signaled that interest rates might remain high in order to ensure that inflation stays under control, which could have negative consequences for trade and output in the forecast periods. In contrast to developed economies, China had edged towards deflation, with prices declining in July 2023 before ticking up in August.

Inflation and commodity prices can strongly influence regional trade volume developments. In the first half of 2023, North America recorded the fastest export growth of any region, up 5.4 percent compared to the same period in the previous year. It was followed by South America (1.4 percent), Africa (0.9 percent), Europe (0.5 percent), the Middle East (0.2 percent), Asia (-2.3 percent) and the CIS region (-3.5 percent). Asia’s export growth is expected to turn positive in the second half of the year while Europe’s is expected to flip into negative territory, the report said.