Trade growth to slow sharply in 2023
Article continues below
WTO economists now predict global merchandise trade volumes will grow by 3.5% in 2022—slightly better than the 3.0% forecast in April.
For 2023, however, they foresee a 1.0% increase—down sharply from the previous estimate of 3.4%.
World trade is expected to lose momentum in the second half of 2022 and remain subdued in 2023 as multiple shocks weigh on the global economy.
WTO economists now predict global merchandise trade volumes will grow by 3.5% in 2022—slightly better than the 3.0% forecast in April.
For 2023, however, they foresee a 1.0% increase—down sharply from the previous estimate of 3.4%.
Import demand is expected to soften as growth slows in major economies for different reasons.
In Europe, high energy prices stemming from the Russia-Ukraine war will squeeze household spending and raise manufacturing costs.
In the United States, monetary policy tightening will hit interest-sensitive spending in areas such as housing, motor vehicles and fixed investment.
China continues to grapple with COVID-19 outbreaks and production disruptions paired with weak external demand.
Finally, growing import bills for fuels, food and fertilizers could lead to food insecurity and debt distress in developing countries.
The new WTO forecast estimates world GDP at market exchange rates will grow by 2.8% in 2022 and 2.3% in 2023 — the latter is 1.0 percentage points lower than what was previously projected.
If the current forecast is realized, trade growth will slow sharply but remain positive in 2023.
It should be noted that there is a high degree of uncertainty associated with the forecast due to shifting monetary policy in advanced economies and the unpredictable nature of the Russia-Ukraine war.
Chart 1 shows quarterly world merchandise trade volume through 2023 with error bands around the forecast period.
If current assumptions hold, trade growth in 2022 could end up between 2.0% and 4.9%.
If the downside risks materialize, trade growth in 2023 could then be as low as -2.8%.
If the surprises are on the upside, however, trade growth next year could be high as 4.6%.
Trade could also finish outside of these bounds if any of the underlying assumptions change.
The Ukraine crisis has pushed up prices for primary commodities, particularly fuels, food, and fertilizers.
These are illustrated by Chart 2, which shows global commodity price indices on the left and natural gas prices by region on the right.
In August, energy prices were up 78% year-on-year, led by natural gas, which was up 250%.
The 36% increase in the price of crude oil over the same period was small by comparison but still significant for consumers.
Natural gas prices have diverged strongly across regions, with European prices up 350% year-on-year in August.
U.S.
prices were up 120% in the same month but remained well below European levels (US$ 8.80 per million Btu compared to US$ 70.00 in Europe).
European demand for liquified natural gas (LNG) to supplement reduced supplies from the Russian Federation has also pushed up energy costs in Asia, where the price of LNG was up 87% in August.
European gas prices have moderated recently, falling 34% between 31 August and 23 September, but they remain high by historical standards.
Oil prices have also receded from recent peaks, possibly indicating weaker global demand rather than an improved supply situation.
Food prices in US dollar terms have also risen sharply due to the fact that the Russian Federation and Ukraine are both major suppliers of grains and fertilizers.
This raises food security concerns in many countries, particularly low-income ones that tend to spend a large fraction of household income on food.
Many currencies have also fallen against the dollar in recent months, making food and fuels even more expensive in national currency terms.
Global grain prices in August were up 15% year-on-year while wheat alone was up 18%.
This marks an improvement over April, when grains had increased 33% and wheat had risen 76%.
Potentially more worrying for the future are fertilizer prices, which were up 60% year-on-year in August after nearly tripling since 2020.
Reduced fertilizer imports and use could reduce crop yields and increase food insecurity next year.
While the supply situation for grains may not be as dire as some had feared at the start of the Ukraine war, it is still a cause for concern.
This is illustrated by Chart 3, which shows the estimated value and volume of world trade in wheat.
In July the volume of traded wheat was down nearly 20% compared to March but only 4% year-on-year.
Underlying data suggest that some countries have responded to higher prices by reducing consumption and imports.
Since March, quantities of imported wheat are down year-on-year in Bolivia (-69%), Jordan (-41%), Zambia (‑38%), Nigeria (-37%), and Ecuador (‑30%), among others.
On the import side, the CIS region plunged 21.7% during the second quarter of 2022, probably as a result of the Russian Federation's exclusion from the SWIFT payments system.
Imports by other resource rich regions (South America, Africa and the Middle East) came in stronger than expected, as higher commodity prices inflated export revenues, allowing countries in these regions to import more.
North America and Europe recorded stronger than expected import growth in the first half of 2022 but Asian imports stagnated, registering year-on-year growth of just 0.7% in the first half.
The WTO's current forecast of 3.5% growth in the volume of world merchandise trade in 2022 is close to but slightly stronger than the previous estimate of 3.0% from last April, but the difference is mostly explained by statistical revisions and the availability of new data.
The Middle East is expected to record the strongest export growth of any WTO region this year (14.6%), followed by Africa (6.0%), North America (3.4%), Asia (2.9%), Europe (1.8%) and South America (1.6%).
In contrast, CIS exports should decline by 5.8% for the year.
The Middle East also had the fastest trade volume growth on the import side (11.1%), followed by North America (8.5%), Africa (7.2%), South America (5.9%), Europe (5.4%), Asia (0.9%) and CIS (-24.7%).
These projections incorporate mixed-data sampling (MIDAS) techniques that use higher frequency data to improve forecasting accuracy.
Specifically, monthly data on container throughput are exploited to capture the effects of port congestion and supply disruptions in the United States and China.
Taking this information into account had a small positive impact on imports by North America and Asia in 2022, reflecting the clearance of backlogs at U.S.
West Coast ports and increased container handling in Chinese ports following pandemic-related stoppages earlier in the year.
Risks to the forecast are numerous and inter-related.
Major central banks are already raising interest rates in a bid to tame inflation but overshooting on tightening could trigger recessions in some countries, which would weigh on imports.
Alternatively, central banks might not do enough to bring inflation down, possibly necessitating stronger interventions in the future.
High interest rates in advanced economies could trigger capital flight from emerging economies, unsettling global financial flows.
Escalation of the Russia-Ukraine war could also undermine business and consumer confidence and destabilize the global economy.
An underappreciated risk would be the decoupling of major economies from global supply chains.
This would exacerbate supply shortages in the near term and reduce productivity over the longer term. ■