WTO slashes trade growth forecast over gloomy global economy

The World Trade Organisation (WTO) has warned that growth in global merchandise trade could plunge considerably in 2023, hurt by global inflation hikes and the lingering impacts of the economic uncertainties around the Russia-Ukraine war.

The intergovernmental body stated this in its recent global merchandise outlook as it slashed its growth forecasts for next year to one percent against the 3.4 percent growth projected in April 2022, adding that trade growth is likely to “lose momentum” in the second half of 2022.

Though the WTO raised its growth forecast for 2022 by half a percent to 3.5 percent, it stated that it was largely because of statistical revisions as the market remains gloomy.

In its 2023 projection, the WTO provided ranges for trade with a worst-case scenario of a -2.8 percent contraction in overall trade or growth as high as 4.6 percent if “the surprises are on the upside”.

The WTO, however, warned that the elongation of the war in Ukraine, consequences of rising interest rates and a poorly performing Chinese economy could cause trade prospects to deteriorate further, considering that the risks are all on the downside.

As major central banks continue to raise interest rates in a bid to tame inflation, the WTO expressed concerns that overshooting on tightening could trigger recessions in some countries, which would weigh on imports.

“The picture for 2023 has darkened considerably,” Ngozi Okonjo-Iweala, WTO director-general, said.

Okonjo-Iweala said the global economy currently faces a multi-pronged crisis amid monetary tightening that is weighing on growth across much of the world.

“There is a lot of worry because of uncertainty. Business doesn’t like uncertainty, economists don’t do very well with uncertainty,” she said.

On the way forward towards improved global trade, the WTO chief called for a deeper, more diversified and less concentrated base for producing goods and services.

“In addition to boosting economic growth, this would contribute to supply resilience and long-term price stability by mitigating exposure to extreme weather events and other localised disruption,” she said.

Despite the gloomy outlook, the WTO identified growth bright spots in Africa and the Middle East, noting that both regions are expected to be the only regions to report significantly higher exports and imports in 2022.

The report noted that exports from the Middle East are expected to jump by 14.6 percent in the Middle East and six percent in Africa, while imports are seen expanding by 11.1 percent and 7.2 percent, respectively.

“For the second quarter of 2022, the Middle East, Africa and South America’s imports came in stronger than expected, as higher commodity prices inflated export revenues, allowing countries in these regions to import more,” the WTO said.

Coleman Nee, senior economist at the WTO, however, warned that the data for both regions is skewed by the dominance of a small number of major natural resource exporters that have benefited from higher commodity prices. Exports from the Middle East and Africa are also expected to contract slightly in 2023.

The WTO report further noted that merchandise trade in the Commonwealth of Independent States (CIS region), which includes Russia, slumped by 21.7 percent in the first half of 2022, while the decline for the whole year is expected to be 5.8 percent.

“Exports from Ukraine have been disrupted by the invasion and Russia’s subsequent occupation of wide swathes of the country’s east, while US- and EU-led sanctions have hammered Russian exports and largely expelled the country from the global financial system,” the report explained.