The World Trade Organization (WTO) has predicted a gradual recovery in global trade this year, following a contraction in 2023 caused by high energy prices and inflation. Its latest report, Global trade outlook and statistics, forecasts a 2.6% increase in merchandise trade volume for 2024 and 3.3% in 2025, after falling by 1.2% in 2023. However, the WTO warned of potential roadblocks to this growth.

Reduced inflationary pressures are expected to boost demand for manufactured goods, particularly in developed economies, said the WTO. Early indicators show a rise in new export orders, suggesting a pick-up in trade activity.

And while the economic impact of disruptions stemming from the Middle East conflict has been limited so far, sectors reliant on efficient shipping routes, like automotive and retail, have already experienced delays and rising freight costs.

WTO chief economist, Ralph Ossa, highlighted a growing trend of scepticism towards free trade. “Some governments have become more sceptical about the benefits of trade and have taken steps aimed at re-shoring production and shifting trade towards friendly nations,” he said. “The resilience of trade is also being tested by disruptions on two of the world’s main shipping routes: the Panama Canal, which is affected by freshwater shortages, and the diversion of traffic away from the Red Sea. Under these conditions of sustained disruptions, geopolitical tensions, and policy uncertainty, risks to the trade outlook are tilted to the downside.

However, while the trade environment is clearly challenging, we should not paint too dark a picture of international trade,” he continued. “The volume of world merchandise trade was essentially flat throughout 2023, and the 1.2% decline in 2023 is relative to 2022. In fact, it was up 6.3% compared to the pre-pandemic peak in the third quarter of 2019, and up 19.1% compared to 2015. These figures emphasise the resilience of international trade.”

Africa’s growth
In a regional analysis, the WTO said that Africa is poised for the fastest export growth (5.3%) in 2024, but this comes from a lower baseline due to the lingering effects of the pandemic. Europe is expected to lag behind other regions with projected growth of just 1.7%. This slower growth reflects the continued impact of high energy prices and the war in Ukraine.

“Europe made the biggest contribution of any region to world trade volume growth in 2022, but it was also primarily responsible for the decline in 2023,” said the report. “The region’s strong influence on merchandise trade is partly explained by its outsized share in world trade (37% on both the export and import sides) since intra-EU trade is counted in regional and global totals.”

“Although Asian economies continued to supply the largest share of manufactured goods of any region in 2023, flat trade volume growth for the year means that the region’s contribution to trade growth was very small. If the WTO’s trade forecast for 2024 is realised, Asia will contribute more to merchandise trade growth than it did over the last two years. The region is expected to add around 1.3 percentage points to the projected 2.9% growth in world exports this year, or around 45%.”

However, all other regions are expected to see below average import growth, including South America (2.7%), the Middle East (1.2%), North America (1.0%), Europe (0.1%) and the CIS region (-3.8%).

Open trade policies
The WTO report emphasised the importance of maintaining open trade policies to foster economic growth and well-being, and mitigating risks like geopolitical tensions and trade fragmentation to ensure a stable and predictable trading environment.
However, fragmentation of data flow policies could have significant negative impacts. Earlier work from WTO economists warned that a decoupling of the global economy into geopolitical blocs could reduce world GDP by 5% in the long run. The WTO said that a forthcoming study by the Organisation for Economic Co-operation and Development and the WTO estimates a potential 1.8% decline in global trade and 1% decline in global GDP if such policies are implemented.

WTO director-general Ngozi Okonjo-Iweala said: “We are making progress towards global trade recovery, thanks to resilient supply chains and a solid multilateral trading framework — which are vital for improving livelihoods and welfare.

“It’s imperative that we mitigate risks like geopolitical strife and trade fragmentation to maintain economic growth and stability.”

Source: The Baltic Exchange