The World Trade Organization (WTO) on Wednesday slashed its global trade growth forecast for 2023, stating that elevated commodity prices and rising interest rates would curb import demand, and warned of a likely contraction if the conflict in Ukraine escalates.
The multilateral body now expects merchandise trade volumes to grow 3.5% in 2022, marginally better than its April forecast of 3%.
But it pegged the growth for 2023 at just 1%, way below its earlier forecast of 3.4%. Importantly, the risks to the forecasts are tilted to the downside.
“The picture for 2023 has darkened considerably,” WTO director-general Ngozi Okonjo-Iweala said in Geneva. “If the war in Ukraine worsens, rather than gets better, that’s going to have a huge impact,” she added.
Trade and economic output will be weighed down by several shocks, including the war in Ukraine, high energy prices, inflation, and monetary tightening, the multilateral body said.
World GDP at market exchange rates, it said, will increase by 2.8% in 2022 and by 2.3% in 2023 (revised down from 3.2%).
Explaining the reason for trade slowdown, the WTO said import demand is expected to soften as growth decelerates in major economies for different reasons. “In Europe, high energy prices stemming from the Russia-Ukraine war will squeeze household spending and raise manufacturing costs. In the US, monetary policy tightening will hit interest-sensitive spending in areas such as housing, motor vehicles and fixed investment,” the world trade body said.
China, meanwhile, continues to “grapple with Covid-19 outbreaks and production disruptions paired with weak external demand”. Inflating import bills for fuels, food and fertilisers could lead to food insecurity and debt distress in developing countries, the WTO said.
In a press conference in Geneva, the WTO’s director general also warned against the “tempting response” to resort to trade restrictions. She said curbs imposed by various countries on food and fertiliser exports had dropped from 57 to 42 in the past month, but then rose back to 53 due to new measures, Reuters reported.
“While trade restrictions may be a tempting response to the supply vulnerabilities that have been exposed by the shocks of the past two years, a retrenchment of global supply chains would only deepen inflationary pressures, leading to slower economic growth and reduced living standards over time,” Okonjo-Iweala said.
Although the WTO doesn’t forecast services trade growth, it has warned that tourist arrivals could fall after tripling in the first seven months of 2022. Similarly, the drop in shipping costs in recent months may been driven more by moderating global demand than easing supply-side bottlenecks, it said.