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WTO indicator suggests moderate trade momentum during first quarter

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Indices for electronics and agricultural raw material trade below trend.

The World Trade Organization’s latest World Trade Outlook Indicator (WTOI) suggests that global trade growth will continue to build moderately in the first quarter of 2017 after having strengthened in the final quarter of last year. Trade-related indicators that include air freight, automobile sales, export orders and container shipping have all registered solid gains in recent months, auguring for faster growth in merchandise trade volumes in the first few months of the year.

The WTOI is a leading indicator of world trade designed to provide "real-time" information on the trajectory of merchandise trade three to four months ahead of trade volume statistics. It combines several trade-related indices into a single composite indicator to measure short-run performance against medium-run trends. A reading of 100 indicates trade growth in line with the trend, while readings greater or less than 100 suggest above- or below-trend growth.

With a current reading of 102.0 for the month of November, the WTOI points to above-trend trade growth in February and March. The WTOI has risen further above trend since the last release three months ago, when the indicator stood at 100.9.

Four of the six component indices of the latest WTOI are more positive than the reading for August. Air freight, automobile sales, export orders and container shipping are all moving in a positive direction -- above trend and rising. Data on international freight metric ton kilometres from the International Air Transport Assn. (IATA) have risen sharply as European air carriers posted strong growth. Container port throughput of major ports has largely recovered from a recent slump, while the automobile index has also rebounded after dipping in the middle of last year. On the other hand, indices for electronics and agricultural raw material trade are both below trend.

The WTO trade forecast issued on Sept. 27, 2016, foresaw world merchandise trade growth of 1.7% in 2016 and growth between 1.8% and 3.1% in 2017.The WTOI currently suggests that trade volume may begin to recover in the fourth quarter once data become available. Any such rebound would have to be fairly strong for trade growth in 2016 to match the 1.7% increase that WTO projected last September.

The WTOI is not intended as a short-term forecast, although it does provide an indication of trade growth in the near future. Its main contribution is to identify turning points and gauge momentum in global trade growth. As such, it complements trade statistics and forecasts from WTO and other organizations.

TAGS: Business
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