The Strategist

WTO: Global trade is losing steam

10/02/2019 - 06:56

The effect of duties and the slowdown in the global economy resulted in a sharp decrease in the growth rate of world trade in goods. The forecast of the World Trade Organization for this year was more than halved, to 1.2%. The organization pointed out the high uncertainty of the situation, both because of trade conflicts, and because of possible macroeconomic shocks, including possible consequences of the UK leaving the EU. Meanwhile, indicators of industrial activity began to indicate a decline not only in China, where the growth of industrial production in August turned out to be minimal for 17 years, but also in the USA.

This year, world trade will grow by only 1.2%, slowing down from 3% in 2018, follows from the updated WTO forecast. Back in April 2019, the organization expected an increase in the turnover of trade in goods by 2.6%. For 2020, the estimate was reduced less significantly, from 3% to 2.7%. However, the actual growth rate of world trade will greatly depend on how the US-China trade conflict develops. Against this background, in 2019, the WTO estimates the range of total export growth at 0.5–1.6%; next year the spread is noticeably wider - from 1.7% to 3.7%.

In the first half of 2019, the actual growth of trade has already turned out to be extremely weak: only 0.6% compared to the same period in 2018, including export of developed countries grew by only 0.2%, export of developing countries - by 1.3%. Imports of developed countries increased by 1.1%; imports of developing countries decreased by 0.4%. Weak imports in Asian countries have particularly negatively affected large exporters of manufactured goods such as Japan, Germany and Italy, the WTO said. The index of new orders, which is calculated by the organization, fell from 54 points in January to 47.5 points in August (a value above 50 points indicates growth, below 50 points indicates a decrease).

“In addition to the direct negative effect of duties, an increase in uncertainty leads to a decrease in the indicator. In this situation, companies postpone investment decisions that can increase productivity; the consequences also apply to employment,” said Roberto Azevedo, Head of the WTO. At the same time, the key risks that can provoke an increase in the recession in trade are not only conflicts, but also macroeconomic shocks, in particular, Brexit and volatility in the financial markets, the organization’s report says.

Recall that the United States and China are going to hold another round of negotiations on the terms of mutual trade next week. Now, US duties apply to deliveries from China of $ 362 billion, and Beijing has imposed additional tariffs on US imports of approximately $ 120 billion. In anticipation of a new discussion of US-Chinese trade, some newspapers reported on the US administration’s plans to delist Chinese companies listed on US exchanges. The US, however, has already stated that they do not have such plans.

So far, the WTO forecast suggests that North American exports in 2019 will grow by 1.5%, imports - by 2.9% (whereas for Asian countries, growth in foreign supplies will be 1.8%, and imports will increase by 1.3 %). The index of business activity in the US industry (ISM) in September was a record low over the past ten years - 47.8 points against 49.1 points a month earlier. At the same time, in China, the value of the PMI purchasing managers index in September improved slightly: to 49.8 points versus 49.5 points in August. Yet, the actual growth in industrial production in China last month was minimal over the past 17 years and amounted to 4,4%.