World trade will grow more slowly than expected in 2016, expanding by just 1.7 percent, well below the April forecast of 2.8 percent, according to the latest World Trade Organisation (WTO) estimates.
The forecast for 2017 has also been revised, with trade now expected to grow between 1.8 percent and 3.1 percent, down from 3.6 percent previously. With expected global GDP growth of 2.2 percent in 2016, this year would mark the slowest pace of trade and output growth since the financial crisis of 2009.
The downgrade follows a sharper than expected decline in merchandise trade volumes in the first quarter (-1.1 percent quarter-on-quarter, as measured by the average of seasonally-adjusted exports and imports) and a smaller than anticipated rebound in the second quarter (+0.3 percent).
The contraction was driven by slowing GDP and trade growth in developing economies such as China and Brazil but also in North America, which had the strongest import growth of any region in 2014-15 but has decelerated since then.World Trade Organisation Director General Roberto Azevêdo
WTO Director-General Roberto Azevêdo said: “The dramatic slowing of trade growth is serious and should serve as a wake-up 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, 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.
“While the benefits of trade are clear, it is also clear that they need to be shared more widely. 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 marginalised 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.”
The latest figures are a disappointing development and underline a recent weakening in the relationship between trade and GDP growth. 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.
However the increase of the number of systematically important trading countries and the shift in the ratio of trade and GDP growth makes it more difficult to forecast future trade growth.
Therefore, the WTO is for the first time providing a range of scenarios for its 2017 trade forecast rather than giving specific figures.
Since the WTO’s April 2016 forecast was issued, some important downside risks have materialised, most notably a period of financial turbulence that affected China and other developing market economies early in the year, but which has since eased.