TWN Info Service on WTO and Trade Issues (Apr17/09)
19 April 2017
Third World Network
World trade to grow 2.4% in 2017, but uncertainties abound
Published in SUNS #8443 dated 13 April 2017
Geneva, 12 Apr (Kanaga Raja) - World merchandise trade in volume terms is
forecast to grow 2.4% in 2017, up from a very weak 1.3% in 2016, the World
Trade Organisation (WTO) said on Wednesday.
In their latest trade statistics and outlook, the WTO economists said growth in
the volume of world merchandise trade is expected to rebound this year from its
tepid performance in 2016, but only if the global economy recovers as expected
and governments pursue the right policy mix.
The WTO is forecasting that global trade will expand by 2.4% in 2017. However,
as deep uncertainty about near- term economic and policy developments raise the
forecast risk, this figure is placed within a range of 1.8% to 3.6%.
In 2018, the WTO is forecasting trade growth between 2.1% and 4%.
At a media briefing on Wednesday, WTO Director-General Roberto Azevedo said
that the poor performance in 2016 was largely due to a significant slowdown in
emerging markets where imports basically stagnated - barely growing in volume
terms last year.
As for the outlook in 2017 and beyond, the DG said that a number of early
indicators point to a recovery in trade growth in 2017.
For example, container port throughput has climbed to a record high. World
export orders are at their highest level in several years. And these factors
combined with an expected recovery in global GDP gives some cause for
"cautious optimism," he said.
The WTO therefore expects world trade to rebound to 2.4% in 2017. However,
because of the high level of economic and policy uncertainty, "we are
placing this figure within a range that goes from 1.8% to 3.6%."
Overall, said Azevedo, "I think that while there are some reasons for
cautious optimism, trade growth remains fragile and there are considerable
risks on the downside."
"And much of the uncertainty around the outlook is of course political,
but not only geo-political. Part of this is also people's concerns about the
impact that trade can have and the fact that trade plays a very beneficial role
in the economy overall it is of course a net positive. It drives growth, job
creation, development but nonetheless people's concerns cannot be
Finding the right response to this means that "we have to look at the
whole picture. The fact that the economy is changing fast, driven by technology
and innovation, is undeniable. Eight in ten manufacturing jobs are lost to
innovative technologies and higher productivity," he maintained.
He added that it is estimated that 65% of children that are entering primary
school today will end up working in types of jobs that don't exist yet.
"So we have to adapt to this new reality. Adapt means apply the right mix
of policies in a wide range of areas. At the domestic level, policies are
needed to help support the workers of today and also to train the workers of
Closing the borders to trade will only worsen the situation, said Azevedo. It
would not bring jobs back. It would just make more jobs disappear.
"So we need to keep using trade to deliver more benefits to more people.
More trade integration can help make the system more inclusive, connecting new
industries and smaller players to new markets."
Asked how much the Trump administration's policies account for the overall
policy uncertainty and whether there has been any clarity from the US
administration on its willingness to engage with the WTO, Azevedo said "we
are waiting to see the new trade team really in place - waiting for the new
USTR to be confirmed so that we can have a more meaningful dialogue."
"At this point in time, we don't have that, and we are still waiting to
see how the trade policy itself is going to shape up in the United
Referring to a graph in the report highlighting global policy uncertainty from
January 2014-February 2017, the DG said that this graph is going up markedly
particularly since 2016.
A bunch of not very numerical elements go into that graph, but a lot of it has
to do with analysis of articles by the press where the word
"uncertainty" (appears) or where the piece itself is about question
marks on the future of fiscal, monetary, or trade policies. All those things
combined show in that graph that the level of uncertainty is going up, he
According to the DG, it could be for a number of reasons - elections,
volatility in financial markets, and question marks about the future of fiscal
policy and monetary policy in major markets.
That does not mean that it is all negative. Uncertainty can also be a good
uncertainty because, for example, investors might be expecting interest rates
to go down, which is good for them. It simply means that they will hold their
investment until that uncertainty is cleared up.
"What we need today is stability. What we need today is
Asked how the Trump administration's statements on imposing tariffs and trade
barriers will affect the trade forecast, Azevedo said that he has heard a
number of comments on the part of authorities connected to the new
administration. Some were going in a particular direction and others were going
in a slightly different direction.
As far as trade and the WTO are concerned, the DG said, "the devil is in
the detail. Just an overall statement of intentions to go in one particular way
or another, doesn't tell us what the trade policy is and it doesn't tell us
what the impact of that trade policy will be on trade relations among WTO members."
"So we need more details. We need more clarity and I suppose that will
come when we have the new trade team in place. We don't have that now, so
anything I say about the impact of the US trade policy would be speculation.
And I am not keen on speculating."
The DG was asked about the fact that he had commented (before the results of
the referendum were known) that Brexit would be bad for Britain but that his
position vis-a-vis the United States is somewhat ambiguous in that he has said
that details (of Trump's trade policies) have not emerged. He was asked to
comment on the apparent double standards when it comes to the US where he is
being extremely cautious, but that he had pronounced his view on Brexit even
before the results of the referendum in Britain were known.
Azevedo said "my standard is very clear. It is the way I see it. That's
the only standard that I apply. And I don't take back anything that I said
about Brexit. And I don't take back anything that I said about the new
administration in the United States."
On Brexit, at the time, he had said that "uncertainty is bad, and I just
said that today, again. Uncertainty is bad. That's what I said at the time and
I keep repeating it now. Now it's done, it's been decided by the British
"I have said before, and I will say it again, the less turbulence we have
in this process the better for the global economy. And as far as the WTO is
concerned, we will try to ensure, as much as we can, less turbulence."
On the US, Azevedo maintained that there was no ambiguity at all in what he
said. "I've said it before and I will say it again. I don't have an
interlocutor in the US. I don't know what the trade policy is. And I haven't
read any piece in the press, or analysts or economists or politicians, telling
me what the US trade policy is. I just don't know and I don't think anybody
does at this point in time. So we have to be patient. We have to see what the
trade policy is."
In their report, the WTO economists said the unpredictable direction of the global
economy in the near term and the lack of clarity about government action on
monetary, fiscal and trade policies raise the risk that trade activity will be
"A spike in inflation leading to higher interest rates, tighter fiscal
policies and the imposition of measures to curtail trade could all undermine
higher trade growth over the next two years."
According to the WTO economists, the WTO's more promising forecasts for 2017
and 2018 are predicated on certain assumptions and there is considerable
downside risk that expansion will fall short of these estimates.
Attaining these rates of growth depends to a large degree on global GDP
expansion in line with forecasts of 2.7% this year and 2.8% next year. While
there are reasonable expectations that such growth could be achieved, expansion
along these lines would represent a significant improvement on the 2.3% GDP
growth in 2016.
In 2016, the weak trade growth of just 1.3% was partly due to cyclical factors
as economic activity slowed across the board, but it also reflected deeper
structural changes in the relationship between trade and economic output.
The most trade-intensive components of global demand were particularly weak
last year as investment spending slumped in the United States and as China
continued to rebalance its economy away from investment and toward consumption,
dampening import demand.
"Global economic growth has been unbalanced since the financial crisis,
but for the first time in several years all regions of the world economy should
experience a synchronized upturn in 2017. This could reinforce growth and
provide an additional boost to trade."
The report noted that forward looking indicators, including the WTO's World
Trade Outlook Indicator, point to stronger trade growth in the first half of
2017, but policy shocks could easily undermine positive recent trends.
Unexpected inflation could force central banks to tighten monetary policy
faster than they would like, under-cutting economic growth and trade in the
short-run. Other factors, such as the uncertainty provoked by the United
Kingdom's withdrawal from the European Union could potentially have an effect.
Meanwhile, the possibility of a rise in the application of restrictive trade
policies could affect demand and investment flows, and cut economic growth over
the medium-to-long term.
"In light of these factors, there is a significant risk that trade
expansion in 2017 will fall into the lower end of the range," said the WTO
The recovery of world trade this year and next is based on expected world real
GDP growth at market exchange rates of 2.7% in 2017 and 2.8% in 2018. This GDP
estimate assumes that developed economies maintain generally expansionary
monetary and fiscal policies, and that developing economies continue to emerge
from their recent slowdown.
The unusually low 1.3% growth in world merchandise trade volume in 2016 was the
result of several risk factors converging over the course of the year. These
weighed on imports of both developed and developing economies, although the
latter were more affected.
Developing economies suffered a sharp 3% decline in imports in the first
quarter, equivalent to an annualized drop of 11.6%, but growth resumed in the
second quarter and losses were recovered by the end of the year.
Meanwhile, imports of developed economies continued to grow but at a reduced
pace. The weakness of imports was reflected on the export side in slow growth
of shipments from both developed and developing countries.
For the year, imports of developed countries grew 2.0% while those of
developing economies stagnated at 0.2%. Exports recorded modest growth in both
developed and developing countries: 1.4% in the former and 1.3% in the latter.
Geographic regions were affected to varying degrees by the slump in trade in
2016. The first quarter was characterized by financial turbulence that affected
China and its regional trading partners, as fears of an economic hard-landing
and currency depreciation increased.
Declines in imports of South America and Other regions (comprising Africa, the
Middle East and the Commonwealth of Independent States) were steeper and more
persistent, driven mostly by low commodity prices. Much of South America's
decline was due to Brazil, which remained mired in a severe recession.
Meanwhile, Europe's exports and imports grew faster than North America's, which
have been mostly flat since the start of 2015.
According to the report, despite positive growth in its exports and imports,
North America was one of the biggest contributors to the weakness of world
imports in 2016.
In 2015, North American imports added 1.2 percentage points to world import
growth of 2.9%, or 42% of the total increase.
By contrast, the region only contributed 0.1 percentage points to world import
growth of 1.2% last year.
Asia and Europe were the only regions making significant positive contributions
to global import demand in 2016, with Europe contributing 1.6 percentage points
(39% of the total increase) and Asia adding 1.9 percentage points (49% of the
Reasons for the lacklustre performance of North America's trade are
multi-faceted, but they include low oil prices and declining rates of
investment, particularly in the energy sector. Investment made essentially no
positive contribution to GDP growth in the United States in 2016.
Investment is the most import intensive component of GDP and has been
particularly weak in developed countries since the financial crisis, with sharp
contractions in Europe in 2012 and 2013 during the sovereign debt crisis.
The contribution of investment to China's economic growth has also declined,
albeit more gradually. Investment accounted for more than half of China's GDP
growth in 2012-13, but by 2016 this had fallen to 39%.
WTO economists said that commodity prices and exchange rates played a large
role in the disappointing trade performance of 2016.
"Plunging prices for oil and metals since the middle of 2014 deprived
resource exporting regions of revenue to purchase imports. Commodity prices
have stabilized and staged a partial recovery, but a return to price levels of
a few years ago is unlikely as long as oil inventories remain high and the US
dollar remains strong."
Dollar values of international trade flows have been strongly influenced by
exchange rates in recent years. In 2016, world merchandise exports were valued
at US$15.46 trillion, down 3.3% from the previous year.
TRADE OUTLOOK FOR 2017 and 2018
According to the WTO economists, leading indicators of real trade growth are up
in the early months of 2017, suggesting a strengthening of trade at the start
of this year.
Container throughput of major ports has recovered from its slump of 2015-16 to
reach a record high level, with year-on-year growth of 5.2% in the first two
months of 2017.
Estimates of world GDP growth at market exchange rates have risen from 2.3% in
2016 to 2.7% in 2017 and 2.8% in 2018.
"Balanced against these positive indications are a number of clear and
significant risks. Growing anti- globalization sentiment and the rise of populist
political movements have increased the likelihood that restrictive trade
measures will be employed more widely."
Narrowly targeted measures would probably not have an appreciable impact on
world trade and output, but across-the-board measures or abandonment of
existing trade agreements could damage consumer and business confidence and
undermine international trade and investment, said the WTO economists.
With inflationary pressures building gradually in developed countries, central
banks could also accelerate their pace of monetary tightening, with negative
consequences for economic growth and trade in the short-run.
Changes in fiscal policy could also have unintended international consequences
that could reduce global economic activity and trade.
In Europe, the challenging negotiations between the United Kingdom and the rest
of the European Union will increase uncertainty about the shape of their trade
relations in the future. Sovereign debt in highly indebted EU countries is
still an outstanding issue that may come to the fore once again over the next
two years, they said.
"Assuming that developed economies maintain generally accommodative fiscal
and monetary policies, that economic recovery in emerging economies proceeds
gradually, and that restrictive trade measures do not proliferate, we would
expect merchandise trade to grow 2.4% in volume terms in 2017."
However, given the significant downside risks and the prolonged period of weak
trade growth in recent years, this growth is placed within a range of 1.8% to
"World trade growth could be as low as 1.8% in 2017 if downside risks
emerge, or it could be as high as 3.6% if our basic assumptions are too
pessimistic, but the upside potential is less likely. In 2018 trade volume
growth should be between 2.1% and 4.0%," said the WTO economists.