The WTO has published its latest set of annual forecasts, which state that global merchandise trade volume growth will be 2.4% in 2017.
Merchandise trade volume growth measures how much the value of global trade increases when prices are held constant, such that growth is due to changes in trade volumes only.
While the figure of 2.4% for 2017 is up from 1.3% in 2016, the WTO cautioned that “deep uncertainty about near-term economic and policy developments raise the forecast risk”, leading them to place the figure within a range of 1.8% to 3.6%. For 2018, trade volume growth is expected to be between 2.1% and 4.0%.
The WTO asserted that a lack of clarity over the direction of the economy in the near term and government action on monetary, fiscal and trade policies increased the risk that trade could be stifled.
“Weak international trade growth in the last few years largely reflects continuing weakness in the global economy. Trade has the potential to strengthen global growth if the movement of goods and supply of services across borders remains largely unfettered. However, if policymakers attempt to address job losses at home with severe restrictions on imports, trade cannot help boost growth and may even constitute a drag on the recovery,” remarked WTO Director-General Roberto Azevêdo.
“We should see trade as part of the solution to economic difficulties, not part of the problem. In fact, innovation, automation and new technologies are responsible for roughly 80% of the manufacturing jobs that have been lost and no one questions that technological advances benefit most people most of the time”, he added.
The WTO’s forecasts are predicated on GDP growth reaching 2.7% this year and 2.8% in 2018. These estimates themselves are based on developed economies maintaining generally expansionary monetary and fiscal policy, and developing economies continuing to emerge from their recent slowdown. Both figures represent an improvement from economic growth of 2.3% in 2016.
Forward looking indicators point to stronger trade growth in the first half of the year, though the WTO was at pains to point out that this does not diminish the risk of negative shocks.
As per the press release: “Unexpected inflation could force central banks to tighten monetary policy faster than they would like, undercutting economic growth and trade in the short-run. Other factors, such as the uncertainty provoked by the United Kingdom’s withdrawal from the European Union could potentially have an effect. Meanwhile, the possibility of a rise in the application of restrictive trade policies could affect demand and investment flows, and cut economic growth over the medium-to-long term. In light of these factors, there is a significant risk that trade expansion in 2017 will fall into the lower end of the range.”
The WTO also sounded concern over the trade to GDP multiplier. Historically, the volume of world merchandise trade has grown at approximately 1.5 times GDP. In the 90s, it grew more than twice as fast, but since the financial crisis, the multiplier has fallen to 1. Last year, the ratio was just 0.6, marking the first year since 2001 that the ratio dropped below 1. With trade growth predicted just below GDP growth in 2017, another year below 1 is on the cards.
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