In a year marked by economic uncertainties, the latest Global Trade Update from the United Nations Conference on Trade and Development (UNCTAD) paints a picture of the dynamic and complex landscape that characterised global trade in 2023. With negative growth persisting since mid-2022, the world witnessed a significant contraction in goods trade, while services trade displayed unexpected resilience. 

Goods trade is expected to bear the brunt of this contraction, shrinking by nearly $2 trillion or 8%, while services trade is poised to gain about $500 billion, representing a 7% increase. Despite the decline in the value of traded goods, the volume of international trade has shown a slightly positive trend, indicating resilient global demand for imported products.

The decline in global trade in 2023 can be attributed to diminished demand in developed nations, underperformance in East Asian economies, and a decrease in commodity prices, said the report. Developed nations witnessed a slump in demand, while East Asian economies grappled with underperformance in 2023. The dip in commodity prices further fuelled the contraction in the trade of goods. On the other hand, services trade experienced growth, driven by a delayed recovery from the Covid-19 downturn. However, this rebound slowed down in the latter half of 2023, particularly impacting developing countries and South-South trade.

Disparities persist

Despite positive economic growth, significant disparities persist among countries and regions, hindering a robust recovery. Factors such as high interest rates, weakening industrial output, commodity price volatility, lengthening supply chains, increased subsidies, and trade restrictive measures are expected to exert negative influences on global trade patterns.

“Regional conflicts and persistent geopolitical tensions are likely to add further uncertainty to commodity markets. Additionally, the increasing importance of securing critical minerals for the energy transition is expected to affect prices and further contribute to market volatility in these commodities,” the report said.

“The resurgence in the use of industrial policy and the urgency of meeting climate commitments are driving changes in trade policies, both in the form of tariffs and non-tariff measures,” it added. “Use of trade restrictive measures has risen in 2023. These inward-looking policies are anticipated to impede the growth of international trade.”

Developing countries faced a more pronounced decline in global trade, with imports and exports declining by an average of 6% and 7%, respectively, on an annual basis. South-South trade, while demonstrating a notable decrease on an annual basis, showed preliminary data for Q3 2023 indicating a milder decline.

Most regions experienced negative trade growth, with the North American region showing better performance, particularly in intra-regional trade. In contrast, East Asian trade exhibited notable weakness throughout 2023, with some signs of recovery in Q3. Regions including the Russian Federation and Central Asia, Africa, Europe, and the region comprising Central Asian economies witnessed a strong decline in exports, especially on an annual basis, said the report.

Friend-shoring increases

Since 2022, the geographical proximity of international trade has remained consistent, but political proximity has increased. This shift indicates a preference for trade with countries sharing similar geopolitical stances, termed as “friend-shoring”. Simultaneously, there has been an overall decrease in the diversification of trade partners, concentrating global trade within major relationships.

Global trade trends at the sectoral level during Q3 2023 portray a mixed scenario. Annual statistics highlight a decline in global trade driven by lower trade in office and communication equipment, as well as textiles and apparel sectors. However, a positive trend was seen in the road vehicles and transport equipment sectors.

But on a quarterly basis, most sectors experienced a decline in trade, with agri-food, textiles, metals, and minerals remaining negative. Notably, the quarterly statistics reveal a rebound in the apparel, communication, and office equipment sectors, while the positive trajectory observed in the trade of transport equipment and motor vehicles sectors during the annual statistics reversed during Q3 2023.

Source: Baltic Exchange, UNCTAD