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Info Service on UN Sustainable Development (Oct23/07) Penang, 6 Oct (Kanaga Raja) — A continued slump in goods trade that began in the fourth quarter of 2022 has led to a lowering of the trade growth forecast for 2023, with the volume of world merchandise trade now expected to grow by 0.8%, down from the 1.7% forecast in April, according to economists at the World Trade Organization. In an update to its Global Trade Outlook and Statistics, released on 5 October, the WTO, however, maintained a more positive outlook for 2024, saying that the projected 3.3% growth for 2024 remains nearly unchanged from its previous estimate. According to the WTO report, world trade and output slowed abruptly in the fourth quarter of 2022 as the effects of tighter monetary policy were felt in the United States, the European Union and elsewhere, but falling energy prices and the end of Chinese pandemic restrictions raised hopes of a quick rebound. “So far, these hopes have not materialized, as strained property markets have prevented a stronger recovery from taking root in China, and as inflation has remained sticky in the United States and the EU.” Together with the after-effects of the war in Ukraine and the COVID-19 pandemic, these developments have cast a shadow over the outlook for trade in 2023 and 2024, said the WTO. The WTO said it now expects world merchandise trade volume growth of 0.8% in 2023 – down from 1.7% in its April forecast – accompanied by real GDP growth of 2.6% at market exchange rates. Trade growth should then pick up to 3.3% in 2024 – nearly unchanged from the previous 3.2% estimate in April – with stable GDP growth of 2.5%, it added. “Trade is expected to grow more slowly than GDP this year but faster next year; such swings are not unusual given the relatively large share of business-cycle sensitive investment and durable goods in trade compared to GDP.” The trade slowdown appears to be broad-based, involving a large number of countries and a wide array of goods, specifically certain categories of manufactures such as iron and steel, office and telecom equipment, textiles, and clothing, said the WTO report, adding that a notable exception is passenger vehicles, sales of which have surged in 2023. The report said that the exact causes of the slowdown are not clear, but inflation, high interest rates, US dollar appreciation, and geopolitical tensions are all contributing elements. Merchandise trade volume was down 0.5% year-on-year in the first half of 2023, but a modest pickup is expected in the second half of the year, it added. The WTO said the trade slump in the fourth quarter of 2022 should also inflate year-on-year growth towards the end of the year. It said recent trade developments and the overall outlook for 2023 are within the estimated confidence interval shown in the WTO’s previous forecast of April 2023 which had already foreshadowed risks firmly tilted to the downside. The report said that risks to the forecast include a sharper than expected slowdown in China and a resurgence of inflation in advanced economies, which would require keeping interest rates higher for a longer period. On the other hand, growth could also exceed expectations if inflation comes down quickly, allowing an early exit from contractionary monetary policies, it added. “Overall, risks to the current outlook are considered to be evenly balanced between the upside and the downside, although there may be some additional growth potential due to the lower base in 2023.” WTO economists said they do see some signs in the data of trade fragmentation linked to geopolitical tensions, but so far there is no evidence of a broader de-globalization trend that could weigh more heavily on trade. The WTO also reported that commodity prices spiked following the start of the war in Ukraine, as the possibility of supply disruptions set off a scramble to secure access to energy products. The price of crude oil peaked in June 2022 while natural gas prices hit an all-time high in August of that year, it said. “Prices have since fallen sharply but they remain high by historical standards. There is a risk that a rebound in prices during the winter months in the northern hemisphere could undermine any nascent economic recovery and further dampen trade volumes.” The global average price of crude oil in August 2023 was still up 38% compared to the average of 2019, while natural gas prices in Europe were up 133%, said the WTO. It said that increased storage capacity for natural gas in European countries should prevent extreme volatility in energy prices this winter, but prices could still rise if demand exceeds supply for other reasons, including cold weather or problems with energy infrastructure. “High commodity prices reduce real incomes but they also threaten low-income countries with food insecurity.” Despite the recent easing of prices, in August 2023, the average price of food products was 46% higher than in 2019, while fertilizer prices were up 93%, the report noted. Farmers could be forced to choose between using less fertilizer or planting fewer crops, both of which would reduce yields and increase the risk of hunger around the world, it cautioned. Declines in prices for food and energy have helped bring down headline inflation rates in many countries, but core inflation (excluding these volatile items) remains sticky, said the WTO. The report said that in August 2023, headline inflation in the United States dropped to 3.7% but core inflation was stuck at 4.3%. Inflation was higher in the Euro Area (headline 5.2%, core 5.3%) and lower in Japan (headline 3.3%, core 2.8%), but in all cases it was above central bank targets. Some central bankers have signalled that interest rates might remain high in order to ensure that inflation stays under control, which could have negative consequences for trade and output in the forecast periods, said the WTO. In contrast to developed economies, China had edged towards deflation, with prices declining in July 2023 before ticking up in August. In the first half of 2023, North America recorded the fastest export growth of any region, up 5.4% compared to the same period in the previous year, said the report. It was followed by South America (1.4%), Africa (0.9%), Europe (0.5%), the Middle East (0.2%), Asia (-2.3%) and the CIS (Commonwealth of Independent States) region (-3.5%). Asia’s export growth is expected to turn positive in the second half of the year while Europe’s is expected to flip into negative territory, said the WTO. In the first half of 2023, import growth was fastest in regions that disproportionately export fuels, as countries in these regions have been flush with export revenues since the start of the war in Ukraine, it added. “These include the CIS (33.7%), the Middle East (12.2%), and Africa (4.6%). Other regions registered declines, including Europe (-1.9%), Asia (-2.0%), North America (-2.8%) and South America (-4.2%).” Import volume growth is expected to turn positive in Asia and North America in the second half of 2023 while Europe’s imports should remain weak, said the report. Although the volume of Asia’s merchandise exports has been flat for some time, it remains well above its level in 2019 thanks to a surge in shipments of manufactures from China during the pandemic, it added. In the first half of 2023, exports of Asia were up 14.6% compared to 2019 while those of North America, South America and Europe rose 3.8%, 3.9%, and 2.8%, respectively. Exports of oil producing regions grew more slowly (Africa, 1.7%) or declined (Middle East -1.2%, CIS -5.7%). On the import side, the WTO said Asia was up 6.9% between 2019 and 2023, while North America jumped 9.8% and Europe rose 4.4%. Imports were also up sharply in resource-exporting regions, including South America (9.5%), the Middle East (11.9%), and the CIS (19.1%), but declined slightly in Africa (-0.6%). Some developments at the country level may seem “counter-intuitive”, the report suggested, citing, for example, while Asia’s imports in the first half of 2023 were down 2.3% year-on-year, China’s imports actually rose 2.0%. Much of the import decline in Asia was due to other countries in the region, including Japan (-2.0%), Singapore (-10.0%), Malaysia (-5.6%) and Thailand (-10.3%), among others. Meanwhile, US imports and EU extra-imports were down 3.7% and 4.2%, respectively. Citing the purchasing managers’ indices (PMIs) based on business surveys, the WTO said that the manufacturing PMI headline index stood at 49.0 in August, marking 12 straight months of contraction. Meanwhile, the more forward-looking new exports orders index stood at 47.0, suggesting continued weakness in goods trade worldwide. Both indices ticked up in August compared to the previous month, providing some hope for an upturn, said the WTO. TRADE PROJECTIONS The WTO said if its forecast is realised, North America will register the strongest export growth of any region in 2023 at 3.6%, followed by the CIS region at 3.0%. It said most other regions would only see modest export growth, except for Africa, where exports are expected to contract by 1.5%. On the other hand, the CIS is expected to record the strongest import growth of any region (25%), followed by the Middle East (12.5%) and Africa (5.1%). The WTO said that other regions will see modest declines, including North America (-1.2%), South America (-1.0%), Europe (-0.7%), and Asia (-0.4%). It said positive export and import volume growth should resume in 2024 in all regions except for the CIS, where imports are expected to decline after a strong rebound in 2023. If the forecast for 2024 is realised, Asia would be the fastest growing region on both the export and import sides, it added. The WTO said that the 0.8% forecast for world trade in 2023 represents a downward revision of 0.9 percentage points from the previous forecast of last April, which predicts a 1.7% increase in merchandise trade. Reasons for the downgrade include a 1.1 percentage point reduction in the 2023 forecast for North America and a 3.0 percentage point reduction in the forecast for Asia, it added. “While the revision of European imports was smaller (0.1 percentage points), contraction was already expected for the region. These three regions account for the vast majority of global demand for imported goods, 88% of the total in 2022.” The value of world merchandise trade in current US dollar terms was down 5% year-on-year in the first half of 2023, partly as a result of falling commodity prices and partly due to US dollar appreciation, which tends to reduce the value of trade denominated in other currencies, said the report. Despite the first half decline, the dollar value of merchandise trade was still up 27% compared to 2019, it said. Several sectors contributed to the decline in merchandise trade in the first half of the year, including fuels and mining products (-15%), iron and steel (-17%), and textiles (-16%). By comparison, trade in manufactures was only down 4%, thanks to strong growth in automotive products (18%) and other machinery (6%), said the WTO. Noting that statistics on commercial services trade by category are not available yet for the second quarter of 2023, it said that such data do exist for the first quarter, together with monthly statistics on selected economies through June 2023. In this context, the WTO said that world commercial services trade was up 9% year-on-year in Q1 of 2023. “As recently as the second quarter of 2022, commercial services trade was up 19% year-on-year, which suggests that services may be losing momentum.” In the first quarter of 2023, commercial services trade was led by travel (up 58%), followed by goods-related services (5%), other commercial services (5%) and transport (-5%), said the report. China and Germany stand out on the export side as the only countries reporting declines (-12% for China, and -4% for Germany), while services exports of France and Singapore were weak but positive, up just 1%. Meanwhile, the United States (7%), the United Kingdom (8%), India (23%) and Japan (17%) registered stronger growth. On the import side, China and the United Kingdom recorded strong year-on-year growth in trade values of 16% and 14%, respectively. Meanwhile, other countries saw moderate increases of between 3% and 9%, it added. TRADE FRAGMENTATION Economic and political tensions between the United States and China – the world’s two largest economies – have been building for several years, leading to the imposition of numerous tariffs, the report noted. These measures have sparked some changes in international trading patterns, but evidence that they have thrown globalization into reverse remains limited, the WTO maintained. The report said one indicator of the extent of global supply chains is the share of intermediate goods in world trade. In this regard, it said in the fourth quarter of 2022 the ratio fell firmly below 50% and has remained there through the first half of 2023. It said the shift is not dramatic: as measured by the average of exports and imports, the intermediate goods share has fallen to 48.5% in the first half of 2023, compared to an average of 51.0% over the previous three years. Whether the decline is due to geopolitical tensions or the recent global economic slowdown is unclear, said the WTO. “Whatever the reason, the data suggest that goods continue to be produced through complex supply chains, but that the extent of these chains may have reached their high-water mark,” it added. Other data suggest that trade may be reorienting along regional and political lines, the report said. In this context, it said that the share of Asian trading partners in US bilateral trade in these goods rose from 39% before the pandemic to 43% in 2022, but for the year to date in 2023 it has fallen to 38%. Over the same period, the share of China in US bilateral trade increased from 11% to 12% before falling back to 10%. Similar shifts in trade patterns can be seen in Germany and Japan but they are even less dramatic, said the WTO. Meanwhile, the structure of China’s trade has remained stable, the most notable shift being a rise in the share of other regions (Africa, CIS, and the Middle East) in parts and components trade, from 5.3% in 2019 to 8.5% in the first half of 2023. Changes in trade shares along geopolitical lines are also discernible in recent data, said the WTO. For example, it said that US trade in parts and components with politically like-minded countries as measured by UN voting patterns fell from 77% before the pandemic in 2019 to 73% afterwards in 2020. This share then rose to 74% in 2022 and finally back to 77% in 2023. While this could be a sign of supply chains shifting for geopolitical reasons, it could also simply be a reversion to pre-pandemic production patterns, said the report. Among other trade-related indicators, the WTO report cited the RWI/ISL container throughput index which is based on container traffic of 92 ports accounting for 64% of world merchandise trade, making it a reasonable proxy for global container throughput, which in general, tracks merchandise trade volume quite closely. As regards traffic through Chinese and European ports, the WTO said that while throughput has stagnated at the global level, traffic in Chinese ports has continued to grow while shipment through European ports had declined. It said this suggests that stagnation in Europe may pose a greater risk to the trade outlook than China’s economic slowdown. The index does not show US ports separately, but data from the port of Los Angeles are suggestive. Throughput there fell 48% between July 2022 and February 2023, then rose 71% through June, it added. This suggests that US trade with Asia is picking up again after slumping in the second half of last year, the WTO said.+
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