Watchdogs warn of a world trade slowdown

GLOBAL trade faces its worst year since the financial crisis as weak growth and a surge in protectionism take their toll, according to two international watchdogs.

The World Trade Organisation said it expects trade to rise by just 1.7pc this year – well below the 2.8pc it predicted in April and the weakest performance since 2009.

The International Monetary Fund blamed ‘weak economic activity’ around the world as well as a recent spike in trade barriers put up by some countries.

The Washington group also warned that the global economy risks sliding into a Japanese-style deflationary spiral that would hold back growth and cost jobs. It said central banks in many parts of the world – such as the US, Europe and Britain – are running out of ammunition to kick-start the global economy and stave off disaster.

The grim warnings highlight mounting concerns over the global outlook as countries struggle to bounce back from the financial crisis and Great Recession.

The bleak outlook – as well as Britain’s future outside the EU, the banking crisis in the eurozone, the Presidential election in the US, and the slowdown in China – will be high on the agenda next week when finance ministers and central bank governors gather in Washington for the annual meetings of the IMF and World Bank.

Roberto Azevedo, director-general of the WTO, said: ‘The dramatic slowing of trade growth is serious and should serve as a wakeup call. 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.’

Noting the mounting backlash against globalisation and free trade – underlined by the tone of the race for the White House – Azevedo added: ‘While the benefits of trade are clear, it is also clear that they need to be shared more widely.’

Echoing the WTO, the IMF said: ‘An increasingly popular narrative that sees the benefits of globalisation and trade accrue only to a fortunate few is also gaining traction.’

The IMF bemoaned ‘the remarkable decline in trade’ in recent years. It said that since 2012 growth in the volume of world trade in goods and services has been ‘tepid’ at around 3pc a year – less than half the rate seen over the previous 30 years. It said the slowdown in trade ‘has few historical precedents during the past five decades’.

The Fund warned that low growth and investment was holding back trade but suggested that selfdefeating and costly trade policies were also ‘putting sand in the wheels of trade’.

‘All forms of protectionism should be resisted,’ it said. The IMF also said central banks in economies whose interest rates are close to zero – as they are in the UK at 0.25pc – are running out of ammunition to bolster growth.

It said low levels of inflation could persuade businesses and households to postpone spending and investment in the hope of getting things cheaper in future.

‘Eventually persistent disinflation can lead to costly deflationary cycles where weak demand and deflation reinforce each other and end up increasing debt burdens and hindering economic activity and job creation,’ it said.