World Trade Organization Lowers Global Trade Growth Projections Due to Inflation and Ukraine Crisis
The World Trade Organization (WTO) has revised its previous projections for global merchandise trade growth, citing rising inflation and tensions between Russia and Ukraine as key factors. The organization now forecasts a growth rate of 0.8%, less than half of the previously predicted 1.7% increase. This downgrade comes at a time when India’s goods exports have been slowing down, with August marking the seventh consecutive month of decline and the goods trade deficit reaching a 10-month high.
According to official data, India’s current account deficit (CAD) has widened to $9.2 billion in the June quarter, putting pressure on the Indian rupee. The global economy has experienced an abrupt slowdown in the fourth quarter of 2022, mainly due to persistent inflation and tighter monetary policies in the United States, the European Union, and other regions. Additionally, China’s strained property markets have hindered a stronger post-COVID recovery.
The WTO Director-General, Ngozi Okonjo-Iweala, expressed concern about the projected slowdown in trade for 2023 and its potential adverse impact on global living standards. She emphasized the need for WTO members to strengthen the global trading framework by avoiding protectionism and fostering a more resilient and inclusive global economy. Okonjo-Iweala warned that a stable, open, predictable, rules-based, and fair multilateral trading system is essential for global economic recovery, particularly for poorer countries.
While not covered by the WTO’s forecast, global commercial services trade appears to be moderating after a robust rebound in transport and travel last year. This trend could be worrisome for India, as world commercial services trade recorded a year-on-year increase of 9% in the first quarter of 2023, compared to a 19% rise in the second quarter of 2022.
However, the WTO predicts that trade growth is likely to pick up in the coming year as global GDP growth stabilizes. Sectors sensitive to business cycles should stabilize and rebound as inflation moderates and interest rates begin to fall. Nonetheless, there are concerns of supply-chain fragmentation, possibly fueled by geopolitical tensions. The report suggests that the share of intermediate goods in world trade, an indicator of global supply chain activity, has fallen to 48.5% in the first half of 2023, compared to the average of 51.0% over the previous three years.
WTO Chief Economist Ralph Ossa pointed out the presence of trade fragmentation linked to geopolitical tensions but assured that broader deglobalization has not yet occurred. While the extent of supply chains may have plateaued in the short term, positive export and import volume growth is expected to resume in 2024. Despite this optimism, Ossa stressed the importance of remaining vigilant.
As the global economy grapples with slower trade growth and mounting challenges, the need for a stable, open, and fair multilateral trading system becomes increasingly evident. The effects of inflation, monetary policies, geopolitical tensions, and supply-chain dynamics will continue to shape the trajectory of international trade, affecting economies worldwide. It is crucial for stakeholders to work together to navigate these complexities and foster a more resilient and inclusive global economic landscape.
