WTO Cuts Trade Forecasts, Warns of Sluggish Growth Ramifications

29 September 2016

The WTO has once again downgraded its global trade growth forecast for 2016 and 2017, issuing sobering new figures on Tuesday morning during its annual Public Forum.

The 27 September report now projects that global trade will grow by 1.7 percent this year, marking a sizable cut from the WTO’s April estimates of 2.8 percent. (See Bridges Weekly, 14 April 2016)

Next year’s figures have also been reduced, with trade growth now expected to fall between 1.8 percent to 3.1 percent in 2017, relative to earlier predictions of 3.6 percent. Should these estimates hold, the Geneva-based organisation suggests that these will be the worst growth figures since the financial crisis began nearly eight years ago.

According to the latest update, the cut in forecasts is the result of slower trade and economic growth in some major emerging economies, along with cuts in import growth in the North American region.

On import growth, South America has been the hardest hit, while nearly all regions are slated to see less export growth than previously anticipated, the WTO said.

The news was not entirely bleak, the WTO noted, and some parts of the world have actually seen increases in exports, such as in Asia. Countries in South America, Africa, the Middle East, and in the Commonwealth of Independent States also saw their declines from earlier this year taper somewhat in recent months.

Trade, GDP relationship

In releasing the new figures on Tuesday, WTO economists warned what the new figures might mean about the historical relationship between trade and economic growth.

Traditionally, trade growth has usually outpaced GDP, though in recent years the difference between them has contracted. The 27 September update suggested that this year could be the first in over a decade where trade could potentially be growing slower than GDP, with 2017’s prospects largely unclear.

“A range of estimates have been provided for 2017 to reflect the increasingly uncertain relationship between trade and output growth,” said the Geneva-based trade body.

The WTO credited a number of possibilities for this changing trend, including the increase of trade restrictions in some quarters and generally limited advances in trade openness.

“Whatever the cause, the recent run of weak trade, and economic, growth suggests the need for a better understanding of changing global economic relationships,” the organisation explained.

Broader context

The discouraging economic outlook could have worrisome implications for trade liberalisation and facilitation, with WTO Director-General Roberto Azevêdo warning that the numbers are “particularly concerning in the context of growing anti-globalisation sentiment.”

“We need to make sure that this does not translate into misguided policies that could make the situation much worse, not only from the perspective of trade but also for job creation and economic growth and development which are so closely linked to an open trading system,” he said.

Indeed, the need to foster a more inclusive trading environment was the subject of this week’s Public Forum, held from 27-29 September. Speakers in the plenary sessions largely focused on the need to both better explain the benefits that can come from open trade, along with better addressing some of its negative implications – both in explaining them, along with rectifying them. (For more on the Public Forum, see related story, this edition)

Separately, the Organisation for Economic Co-operation and Development (OECD) recently released its own update to its projections for this year’s global GDP growth, finding that its latest estimate of three percent is largely similar to its earlier predictions issued in June. The Paris-based agency cited as factors the weaker conditions in developed economies, including the uncertainty resulting from the UK’s referendum earlier this year to leave the European Union.

Coming up on the international economic calendar will be next month’s Annual Meetings of the International Monetary Fund (IMF) and the World Bank Group, due to be held from 7- 9 October in Washington. The updated trade forecasts, along with the expected update of the IMF’s semi-annual World Economic Outlook, will likely dominate the upcoming conversations regarding international economic conditions.

ICTSD reporting.

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