Escalating Trade Tensions, Tighter Credit Markets to Slow World Trade Growth: WTO

Escalating trade tensions and tighter credit market conditions in important markets will slow world trade growth for the rest of this year and in 2019, World Trade Organisation (WTO) economists expect.

Global trade will continue to expand but at a more moderate pace than previously forecast, WTO said on Thursday (27).

WTO anticipates growth in merchandise trade volume of 3.9 per cent in 2018, with trade expansion slowing further to 3.7 per cent in 2019.

The new forecast for 2018 is below the WTO's April 12 estimate of 4.4 per cent but falls within the 3.1 per cent to 5.5 per cent growth range indicated at that time. Trade growth in 2018 is now most likely to fall within a range from 3.4 per cent to 4.4 per cent, WTO said in a release on Thursday (27).

Some of the downside risks identified in the April release have since materialised, most notably a rise in actual and proposed trade measures targeting a variety of exports from large economies.

The direct economic effects of these measures have been modest to date but the uncertainty they generate may already be having an impact through reduced investment spending. Monetary policy tightening in developed economies has also contributed to volatility in exchange rates and may continue to do so in the coming months.

WTO director-general Roberto Azevêdo said, “While trade growth remains strong, this downgrade reflects the heightened tensions that we are seeing between major trading partners. More than ever, it is critical for governments to work through their differences and show restraint. The WTO will continue to support those efforts and ensure that trade remains a driver of better living standards, growth and job creation around the globe.”

The updated trade forecast is based on expectations of world real GDP growth at market exchange rates of 3.1 per cent in 2018 and 2.9 per cent in 2019. This implies a ratio of trade growth to GDP growth of 1.3 per cent in both years.

Trade policy measures are far from the only risk to the forecast. Developing and emerging economies could experience capital outflows and financial contagion as developed countries raise interest rates, with negative consequences for trade. Geopolitical tensions could threaten resource supplies and upset production networks in certain regions, WTO said.

Finally, structural factors such as the rebalancing of the Chinese economy away from investment and toward consumption are still present and could weigh on import demand due to the high import content of investment. Overall, risks to the forecast are considerable and heavily weighted to the downside, WTO added.