WTO cuts 2013 trade growth forecast
The World Trade Organization (WTO) said on April 10 2013 that it was cutting its trade growth forecast for 2013 because of risks from the euro zone crisis and from greater protectionism.
The WTO now expects global trade to grow by 3.3 per cent in 2013, down from the organisation’s earlier forecast of 4.5 per cent.
World trade growth fell to two per cent in 2012 — down from 5.2 per cent in 2011 — and is expected to remain sluggish in 2013 at about 3.3 per cent as the economic slowdown in Europe continues to suppress global import demand, WTO economists said on April 10.
“The events of 2012 should serve as a reminder that the structural flaws in economies that were revealed by the economic crisis have not been fully addressed, despite important progress in some areas. Repairing these fissures needs to be the priority for 2013,” Director-General Pascal Lamy said.
The abrupt deceleration of trade in 2012 was attributed to slow growth in developed economies and recurring bouts of uncertainty over the future of the euro. Flagging output and high unemployment in developed countries reduced imports and fed through to a lower pace of export growth in both developed and developing economies.
Improved economic prospects for the United States in 2013 should only partly offset the continued weakness in the European Union, whose economy is expected to remain flat or even contract slightly this year according to consensus estimates.
China’s growth should continue to outpace other leading economies, cushioning the slowdown, but exports will still be constrained by weak demand in Europe, the WTO said. As a result, 2013 looks to be a near repeat of 2012, with both trade and output expanding slowly, below their long-term average rates, it said.
“Attempts by developed economies to strike a balance between short-term growth and increasingly binding fiscal constraints have produced uneven results to date, and finding an appropriate mix of policies has proven to be challenging. Similarly, the amount of progress that developing economies have made in reducing their reliance on external demand is still unclear,” Lamy said.
“As long as global economic weakness persists, protectionist pressure will build and could eventually become overwhelming. The threat of protectionism may be greater now than at any time since the start of the crisis, since other polices to restore growth have been tried and found wanting.
“To prevent a self-destructive lapse into economic nationalism, countries need to refocus their attention on reinforcing the multilateral trading system. Trade can once again be an engine of growth and a source of strength for the global economy rather than a barometer of instability. The way is before us, we only need to find the will,” he said.
The trade forecast for 2013 assumes 2.1 per cent growth in world output at market exchange rates (unchanged from 2012) based on a consensus of economic forecasters. Risks to the forecast are firmly rooted on the downside and are mostly linked to the sovereign debt crisis in Europe.
Accelerated fiscal consolidation in the US could also undermine the forecast if brinksmanship over budget negotiations between the executive and legislative branches leads to miscalculation. As always, unexpected events such as geopolitical tensions and natural disasters could also intrude to disrupt trade.
On a more positive note, some factors that held back trade growth in 2012 may subside in 2013, including the recent territorial dispute that soured trade relations between Japan and China.
Indicators of production, business sentiment and employment in the first quarter of 2013 paint a mixed picture of current economic conditions. Purchasing managers’ indices suggest that the euro-zone downturn may have accelerated despite continued resilience in Germany. At the same time, the US recorded a strong rise in manufacturing, Japan’s production growth was less negative, and China and the Republic of Korea showed modest improvements.
Unemployment in the US recently fell to its lowest level since before the economic crisis at 7.6 per cent, whereas the rate for the euro area stands at close to 12 per cent. Together, these indicators point to weak import demand in Europe even as conditions gradually improve elsewhere. In light of the large weight of the EU in world imports (32 per cent in 2012 including trade within the EU, 15 per cent excluding it), this suggests slow growth for trade in the early part of 2013.
The WTO’s forecast of 3.3 per cent growth in merchandise trade for 2013 is below the average rate of 5.3 per cent for the last 20 years (1992–2012) and well below the pre-crisis average rate of six per cent (1990–2008). The divergence from the 20-year average narrows in the two-year-ahead forecast for 2014 (5.0 per cent), but it still remains below average. The difference between the pre-crisis trend and current and projected values for world trade appears to be widening, albeit slowly.
“If our forecast comes to pass, the gap in percentage terms will be 17 per cent in 2013 and 17.8 per cent in 2014,” the WTO said.
At some point in the future trade growth will again surpass its 20 year average, if only because this average keeps falling with every passing year of sub-par growth, according to the WTO. “When or if it will manage to bridge the gap with its pre-crisis trend remains to be seen.”
In addition to a durable level shift in the series, it appears that the fundamental growth rate of world trade volumes has also been reduced. To return to this trend would require a period of very rapid trade expansion at some point in the future, but such a boom in trade does not appear likely any time soon, the WTO said.
(Photo of WTO director general Pascal Lamy: European Parliament)