WTO slashes global trade growth forecast for 2023 to 0.8% from 1.7%

The World Trade Ogranisation (WTO) has cut global merchandise trade growth projections to 0.8% this year, down from the 1.7% projected in April this year amid the slump that started in the fourth quarter of 2022, according to the latest WTO trade forecast released on October 5.

The global trade body, however, says the 3.3% growth projected for the year 2024 remains nearly "unchanged" from its previous estimate of 3.2%, with stable GDP growth of 2.5%.

"World trade and output slowed abruptly in the fourth quarter of 2022 as the effects of persistent inflation and tighter monetary policy were felt in the United States, the European Union, and elsewhere, and as strained property markets in China prevented a stronger post-COVID-19 recovery from taking root," says the WTO’s Global Trade Outlook and Statistics Update for October 2023.

With the consequences of the war in Ukraine, together these developments have cast a shadow over the outlook for trade, the global trade organisation says.

Trade is expected to grow more slowly than GDP this year but faster next year, says the report. "...such swings are not unusual given the relatively large share of business-cycle sensitive investment and durable goods in trade compared to GDP."

The WTO report adds the trade growth should pick up next year accompanied by “slow but stable” GDP growth. "Sectors that are more sensitive to business cycles should stabilise and rebound as inflation moderates and interest rates start to come down."

However, some signs that are emerging show “supply chain fragmentation”, reveals the report, adding that it could threaten the relatively positive outlook for 2024.

The WTO cites the example saying the share of intermediate goods in world trade, an indicator of global supply chain activity, fell to 48.5% in the first half of 2023 vs an average of 51% over the previous three years.

“The projected slowdown in trade for 2023 is cause for concern, because of the adverse implications for the living standards of people around the world. Global economic fragmentation would only make these challenges worse…WTO members must seize the opportunity to strengthen the global trading framework," says WTO director-general Ngozi Okonjo-Iweala.

As per WTO chief economist Ralph Ossa, the global body does see some signs in the data of trade fragmentation linked to geopolitical tensions. "Fortunately, broader deglobalisation is not here yet. Positive export and import volume growth should resume in 2024, but we must remain vigilant.”

The world commercial services trade is not covered by the forecast. However, says the WTO, the preliminary data show growth in the sector may be moderating after last year's strong rebounds in transport and travel. Notably, the world commercial services trade was up 9% year-on-year in the first quarter of 2023 compared to a 19% year-on-year rise in the second quarter of 2022.