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World Trade Growth to Sink Below Three Percent for Fourth Straight Year, WTO Predicts

Thursday, October 01, 2015
Sandler, Travis & Rosenberg Trade Report

World Trade Organization economists have lowered their forecasts for world merchandise trade growth to 2.8 percent in 2015 (down from 3.3 percent in April) and 3.9 percent in 2016 (down from 4.0 percent). According to a WTO press release, these revisions reflect factors such as falling import demand in China, Brazil and other emerging economies; declining prices for oil and other primary commodities; and significant exchange rate fluctuations. In addition, volatility in financial markets, uncertainty over monetary policy in the United States and mixed recent economic data have clouded the outlook for trade in the second half of 2015 and beyond. The WTO notes that if these revised projections are realized, 2015 will mark the fourth consecutive year in which annual trade growth has fallen below three per cent and has roughly matched the growth rate of world GDP rather than doubling it as was the case in the 1990s and early 2000s.

Trade Growth in 2015. The WTO finds that so far this year trade growth has remained uneven across countries and regions. After a long period of stagnation, Europe recorded the fastest year-on-year export growth of any region in the second quarter at 2.7 percent, followed by North America at 2.1 percent, Asia at 0.6 percent, South and Central America at 0.4 percent and other regions (including Africa, the Commonwealth of Independent States and the Middle East) at -1.0 percent. Disparity between regional growth rates was stronger on the import side, with positive growth of 6.5 percent in North America, 3.1 percent in Asia and 1.6 percent in Europe along with declines of 2.3 percent in South and Central America and 3.1 percent in other regions. 

Projections for Rest of 2015 and 2016. Looking ahead, the WTO expects exports from developed economies to rise 3.0 percent in 2015 and 3.9 percent in 2016. Developing economies’ exports are expected to grow more slowly at 2.4 percent in 2015 and 3.8 percent in 2016. Developed economy imports should increase at around the same rate in 2015 (3.1 percent) and 2016 (3.2 percent), while those of developing economies should jump from 2.5 percent in 2015 to 5.2 percent in 2016. However, the WTO cautions that a slower than expected rebound from recent declines in developing economies’ imports could lower global trade growth in 2015 by half a percentage point.

Asia Struggles due to Slowing Chinese Economy. The strongest downward revision to the previous export forecast for 2015 was applied to Asia, from 5.0 percent to 3.1 percent. The WTO states that this is mostly due to falling intra-regional trade as China’s economy has slowed. The downward revision to Asia on the import side was even stronger, from 5.1 percent to 2.6 percent, partly due to Chinese imports that were down 2.2 percent year-on-year in the second quarter. According to the WTO, the product composition of China’s merchandise imports suggests that some of this slowdown may be related to the country’s ongoing transition from investment to consumption-led growth. Large year-on-year drops in quantities of imported machinery (-9 percent) and metals (-10 percent for iron and steel, -6 percent for copper) were recorded in August while strong increases were recorded for agricultural products, including cereal grains (+130 percent) and oilseeds (+33 percent).

Challenges in Brazil Affecting South America. Imports for South and Central America are now expected to fall faster (-5.6 percent) than predicted in April (-0.5 percent). According to the WTO, much of this reduction can be attributed to adverse economic developments in Brazil, which has been simultaneously hit by a fiscal crisis, a financial scandal involving the country's largest company, and falling export prices. However, a rebound in South and Central America imports is expected in 2016 as Brazil's GDP growth stabilizes and its imports start to recover. Other countries in the region should also see imports accelerate as their economies improve in 2016.

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