Global trade growth to remain sluggish in 2016 as uncertainties hit global demand, WTO warns

13 April 2016

GROWTH in world trade is expected to remain sluggish in 2016 but should pickup the following year, according to the latest forecast from Word Trade Organisation (WTO) economists.

Global trade growth in 2016 will be at around 2.8 per cent, unchanged from 2015. Imports to developed countries should moderate while demand for imported goods in developing Asian economies should pick up.

The picture looks brighter in 2017 when the WTO says global trade growth should rise to 3.6 per cent, although this will still be below the 5% average since 1990.

Risks to growth this year (2016), include the Chinese economy slowing more than expected, worsening financial market volatility and the exposure of countries with large foreign debts to sharp exchange rate movements. On a brighter note the WTO economists says that monetary support from the European Central Bank (ECB) may generate faster growth in the euro area.

Detailed analysis for 2015 showed that South America recorded the weakest import growth of any region; exports from developed economies lagged behind developing countries with 2.6% growth compared to 3.3%; imports to developed economies were 4.5% while developing countries stagnated at only 0.2%. The sharp trade slowdown in all regions in 2015 Q2 was mostly reversed by the year end.

WTO director-general, Roberto Azevêdo, said: “2016 will be the fifth consecutive year of below 3% trade growth. Moreover, while the volume of global trade is growing, its value has fallen because of shifting exchange rates and falls in commodity prices. This could undermine fragile economic growth in vulnerable developing countries. The threat of creeping protectionism also remains as many governments continue to apply trade restrictions.”

He added that the figures should be kept in perspective as there are several measures which can be implemented by WTO members to stimulate economic growth, from rolling back restrictive trade measures to implementing the WTO Trade Facilitation Agreement.

He said: “The Trade Facilitation Agreement will dramatically cut trade costs, potentially boosting trade by up to $1 tr annually. More can also be done to address remaining tariff and non-tariff barriers on exports of agricultural and manufactured goods.”

The WTO economists say that, on the basis of the 2016 forecast, global trade will have grown at roughly the same rate as world GDP for five years rather than twice as fast as was previously the case. 

Such a long, continuous, period of slow, but positive, trade growth is unprecedented, but its significance should not be exaggerated. Trade growth was weaker between 1980 and 1985 when five out of six years were below three per cent, including two years of contraction.

Indicators of economic and trade activity in the opening months of 2016 are mixed, with some pointing to a firming of trade and output growth and others indicating a slow down.

On the positive side, container traffic at major ports has recovered much of the ground lost in the slowdown in 2015 while vehicle sales — one of the best early signals of trade downturns — have continued to grow at a healthy rate in developed countries.

In spite of this good news, composite leading indicators from the Organisation for Economic Cooperation and Development (OECD) signal an easing of growth in OECD countries, and financial market fluctuations have continued in 2016 meaning trade growth may stay volatile in 2016.

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