Downgrade is due to drop in volumes
The World Trade Organisation dramatically slashed its forecast for trade growth this year by about a third to its lowest rate since 2009, when the global economy was mired in recession in the wake of the financial crisis.
In an update to its forecasts yesterday, the world’s leading trade body said the groundswell in anti-globalisation sentiment could make matters worse, especially if policymakers respond to that in a “misguided” manner.
The Geneva-based WTO, perhaps best known for dealing with trade disputes, predicted that global trade will rise only 1.7 per cent this year, way down from its April prediction of 2.8 per cent.
It said the downgrade was largely due to an unexpectedly sharp drop in merchandise trade volumes in the first quarter. Lower economic growth and trade in developing countries like China and Brazil as well as a deceleration in imports in North America lay at the heart of the sharp downgrade.
If the WTO’s forecast comes true, it will be the first time in 15 years that global trade grows more slowly than the world economy, which it expects to expand by 2.2 per cent.
“The dramatic slowing of trade growth is serious and should serve as a wake-up call,” WTO director-general Robert Azevedo said. “It is particularly concerning in the context of growing anti-globalisation sentiment.”
“We need to make sure that this does not translate into misguided policies that could make the situation much worse,” he added, referring to job creation and growth.
As well as reducing its 2016 forecast, the WTO cut its project for next year to between 1.8 per cent and 3.1 per cent from 3.6 per cent.
The WTO warned of a number of risks, such as the effect of the British vote to leave the European Union and financial market volatility stemming from changes in monetary policy in developed countries – the US Federal Reserve is set to raise interest rates again while the European Central Bank and the Bank of Japan could cut borrowing costs further.
It also voiced worries that growing anti-trade rhetoric around the world might affect trade policy. One planned trade deal that looks to be in trouble is the proposed Trans-Atlantic Trade and Investment Partnership, commonly known as TTIP, between the US and EU. TTIP aims to remove trade barriers between the two but the secretive discussions have reportedly become concerns – and protests –ß in Europe over what a deal would mean for food safety and privacy protections.