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World Trade Growth in 2016 Slowest Since Global Financial Crisis

Monday, October 03, 2016
Sandler, Travis & Rosenberg Trade Report

World Trade Organization economists have lowered their forecasts for world merchandise trade growth in 2016 to 1.7 percent, down from 2.8 percent this past spring and 3.9 percent a year ago. If this projection is realized, 2016 will mark the sixth consecutive year in which annual trade growth has been below three per cent and the slowest pace of trade growth since the global financial crisis reached its peak in 2009.

According to the WTO, trade growth was weaker than expected in the first half of 2016 due to falling import demand and slowing GDP growth in China, Brazil, and North America. As a result, world trade was essentially flat during this period, with average imports and exports down 0.3 percent compared to the previous year. There are some indications that trade may be picking up in the second half of 2016, the WTO states, including increases in container port throughput and export orders and the stabilization of nominal trade flows in U.S. dollar terms. However, numerous uncertainties remain, including financial volatility stemming from changes in monetary policy in developed countries, the possibility that growing anti-trade rhetoric will increasingly be reflected in trade policy, and the potential effects of the Brexit vote in the United Kingdom.

The WTO notes that 2016 could mark the first time in 15 years that the ratio between trade growth and GDP growth has fallen below 1:1. Strong trade growth has historically been a sign of strong economic growth as trade has provided a way for developing and emerging economies to grow quickly, and strong import growth has been associated with faster growth in developed countries. The WTO states that the decline in this correlation is likely due to a number of factors, including changes in the import content of demand, the absence of trade liberalization, creeping protectionism, a contraction of global value chains, and possibly the increasing role of the digital economy and e-commerce.

In the meantime, the WTO states, this change makes it more difficult to forecast future trade growth. As a result, the WTO is for the first time providing a range of scenarios for its 2017 trade forecast (i.e., growth of between 1.8 percent and 3.1 percent) rather than giving specific figures.

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