A new report from World Trade Organization (WTO) economists said escalating trade tensions and tighter credit market conditions in key markets will slow trade growth for the rest of this year and in 2019.
The report said trade will continue to expand, but at a more moderate pace than the WTO had previously forecast. The WTO now expects growth in merchandise trade volume of 3.9% in 2018, with trade expansion slowing to 3.7% in 2019.
The new forecast for 2018 is below the WTO’s April estimate of 4.4% growth, but falls within the 3.1% to 5.5% growth range indicated at that time. Trade growth in 2018 is now most likely to fall within a range from 3.4% to 4.4%, the WTO said.
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Clearly referring to the tariff-driven trade war between the U.S. and China, the WTO said some of the downside risks identified in April have since occurred, most notably a rise in actual and proposed trade measures targeting a variety of exports from large economies.
“The direct economic effects of these measures have been modest to date, but the uncertainty they generate may already be having an impact through reduced investment spending,” the WTO said. “Monetary policy tightening in developed economies has also contributed to volatility in exchange rates and may continue to do so in the coming months.”
WTO director general Roberto Azevêdo said, “While trade growth remains strong, this downgrade reflects the heightened tensions that we are seeing between major trading partners. More than ever, it is critical for governments to work through their differences and show restraint. The WTO will continue to support those efforts and ensure that trade remains a driver of better living standards, growth and job creation around the globe.”
The updated trade forecast is based on expectations of world real gross domestic product (GDP) growth of 3.1% in 2018 and 2.9% in 2019. This implies a ratio of trade growth to GDP growth of 1.3 in both years, the report noted.
“Trade policy measures are far from the only risk to the forecast,” the report said. “Developing and emerging economies could experience capital outflows and financial contagion as developed countries raise interest rates, with negative consequences for trade. Geopolitical tensions could threaten resource supplies and upset production networks in certain regions. Finally, structural factors such as the rebalancing of the Chinese economy away from investment and toward consumption are still present and could weigh on import demand due to the high import content of investment. Overall, risks to the forecast are considerable and heavily weighted to the downside.”
In the first half of 2018, world merchandise trade was up 3.8% compared to the same period in the previous year, the WTO noted. Exports of developed economies rose 3.5% in the six months, while shipments from developing economies increased by 3.6%. On the import side, developed economies recorded 3.5% year-on-year growth in the half, as developing countries registered an increase of 4.9%.
North American export topped the growth during this period at 4.8%, followed by Asia at 4.2% and Europe at 2.8%. Asia had the fastest import growth at 6.1%, followed by South America at 5.5%, North America at 4.8% and Europe at 2.9%.
The report made note that prices of energy commodities, including oil, rose 33 percent year-to-date through August, which boosted export revenues in the sector. The WTO also said that U.S. exports and imports remained strong, even as the dollar has appreciated 8.4% in real effective terms since January.
