WTO economists have reduced their forecast for world trade growth in 2014 to 3.1% (down from the 4.7% forecast made in April) and cut their estimate for 2015 to 4.0% from 5.3% previously.
The downgrade comes in response to weaker-than-expected GDP growth and muted import demand in the first half of 2014, particularly in natural resource exporting regions such as South and Central America. Beyond this specific downward revision, risks to the forecast remain predominantly on the downside, as global growth remains uneven and as geopolitical tensions and risks have risen.
“International institutions have significantly revised their GDP forecasts after disappointing economic growth in the first half of the year,” said Director-General Roberto Azevêdo.
“In light of this, the WTO’s forecasts for trade growth have also been revised downwards for 2014 and 2015. Uneven growth and continuing geopolitical tensions will remain a risk for both trade and output in the second half of the year.“This is a moment to remind ourselves that trade can play a positive role here. Cutting trade costs and broadening trade opportunities can be a key ingredient to reversing this trend.”
When the last forecast was released in April 2014, conditions for stronger trade growth appeared to be falling into place after a two year slump that saw world merchandise trade grow just 2.2% on average during 2012–13, roughly equal to the rate of growth of world gross domestic product (GDP). Leading indicators at the time pointed to an upturn in developed economies and Europe in particular.
Although growth has strengthened somewhat in 2014, it has remained unsteady. Output fell in the first quarter in the United States (–2.1%, annualized rates) and in the second quarter in Germany (–0.6%), sapping global import demand. China’s GDP growth also slowed from 7.7% in 2013 to 6.1% in the first quarter of 2014 before rebounding in the second. The slow first quarter contributed to weak exports in trading partners.
As a result of these and other factors, global trade stagnated in the first half of 2014, as the gradual recovery of import demand in developed countries was offset by declines in developing countries.
Growth in trade and output is expected to be somewhat stronger in the second half of 2014 as governments and central banks may provide policy support to boost growth, and as idiosyncratic factors that weighted on trade in the first half (e.g. harsh winter weather in the United States, a sales tax rise in Japan, etc.) begin to fade. However, several risk factors on the horizon have the potential to produce worse economic outcomes.
Tensions between the European Union and the United States on the one hand and the Russian Federation on the other, over Ukraine have already resulted in trade sanctions on certain agricultural commodities, and the number of products affected could widen if the crisis persists. Conflict in the Middle East is also stoking uncertainty, and could lead to a spike in oil prices if the security of oil supplies is threatened. Finally, an outbreak of Ebola haemorrhagic fever in West Africa has proven difficult to contain, and any spread of the disease could trigger a broader panic with major economic implications for West Africa, and perhaps even beyond the region. The presence of several such low probability/high cost risk factors has made the trade forecast particularly difficult to gauge this year.