The World Trade Organisation has just issued its most recent ‘Global Trade Outlook’ which forecasts that trade growth is likely to be “subpar”. The WTO believes that the volume of what it calls “world merchandise trade” will expand by 1.7% this year, in contrast to the 2.7% seen in 2022. “Merchandise Trade” is trade in physical products, rather than services.
The reasons cited by the WTO for this slowdown in the rate of growth is the war in the Ukraine, what it calls “stubbornly high inflation”, tighter monetary policy and “financial market uncertainty”.
However, 2024 should see things pickup, with growth in trade activity recovering to 3.2%, although the WTO does not seem very confident in this view. It comments that the “estimate is more uncertain than usual due to the presence of substantial downside risks, including geopolitical tensions, food supply shocks, and the possibility of unforeseen fallout from monetary tightening.”
In might be suggested that the forecasts on matters such as trade are difficult in the present economic environment, with the WTO’s Chief Economist, Ralph Ossa stating that whilst effects from COVID-19 could be seen in the 2022 and 2023 growth numbers, issues such weaknesses in the banking system could result in “financial instability if left unchecked”.
Mr Ossa was also cautious about longer-term prospects from growth. Talking to the German newspaper Frankfurter Allgemeine Zeitung, he said that the World seemed engaged in a process of “deglobalisation” which over a series of stages, would result in a fall in both cross-border trade and trade volumes. He suggested that the rate of global growth might be reduced by 5.4% a consequence of this trend.
Setting aside the issue of the reliability of these forecasts, the implications for the global logistics sector would seem to be fairly clear in the short-term. Already demand on the trans-Pacific shipping routes is weak as are many markets for air freight. The immediate prospects would appear to be a weaker demand going into the second half of the year, with the possibility of financial instability resulting in sharp falls in trade.
Author: Thomas Cullen
Source: Ti Insights