Modest trade growth projected

WTO economists expect modest upturn in world trade growth next two years following a two-year sluggish trend.

World trade is expected to grow by a modest 4.7% in 2014 and at a slightly faster rate of 5.3% in 2015 World Trade Organization (WTO) economists reported April 14.

Although the 2014 forecast of 4.7% is more than double the 2.1% increase of last year, it remains below the 20-year average of 5.3%. For the past two years, growth has averaged only 2.2%.

The sluggish pace of trade growth in 2013 was due to a combination of flat import demand in developed economies (0.2%) and moderate import growth in developing economies1 (4.4%), the WTO said. On the export side, both developed and developing economies only managed to record small, positive increases (1.5% for developed economies, 3.3% for developing economies).

“For the last two years trade growth has been sluggish. Looking ahead, if GDP forecasts hold true, we expect a broad-based but modest upturn in 2014, and further consolidation of this growth in 2015,” WTO Director-General Roberto Azevêdo said. “It's clear that trade is going to improve as the world economy improves. But I know that just waiting for an automatic increase in trade will not be enough for WTO Members.”

Looking back to 2013

Developing economies trade flows turned negative in the middle of 2013, as exports and imports each fell 1% between the first half and the second. Developed economies staged a modest recovery, as exports and imports rose 1% and 1.5%, respectively, during the same period.

Several factors contributed to the weakness of trade and output in 2013, including the lingering impact of the EU recession, high unemployment in euro area economies (Germany being a notable exception), and uncertainty about the timing of the Federal Reserve’s winding down of its monetary stimulus in the United States.

The latter contributed to financial volatility in developing economies in the second half of 2013, particularly in certain “emerging” economies with large current account imbalances. However, WTO reported improvement in U.S. employment looks to allow the Federal Reserve to proceed with its planned tapering of their third round of quantitative easing, which will assist in the overall recovery.

Overall, exports in the second half of the year were up for the United States (3.3%), intra EU (2.0%), and Japan (1.2%), while developing Asia was flat (0.0%) and extra EU slightly negative (-1.5%).

2014 outlook

Prospects for world trade and output in 2014 and 2015 are better than they have been for some time, but leading economies remain fragile, including some of the most dynamic developing countries that until recently were propping up global demand. Downside risks to trade abound, but significant upside potential also exists, as the U.S. economy seems to be gaining momentum and the European Union appears to have turned a corner. At the same time, developing economies have slowed appreciably, for a variety of reasons both internal and external. Which of these forces is stronger may determine how world trade evolves over the next 1 to 2 years, the economists noted.

Despite having hit a soft patch recently, developing economies (including China) should continue to outpace developed economies in terms of GDP and trade growth in the coming year, but some could encounter setbacks, particularly those most exposed to the recalibration of monetary policy in developed countries, WTO said.

The WTO’s forecast of 4.7% growth in world merchandise trade for 2014 is below the average rate of 5.3% for the last 20 years (1993–2013) and also below the pre-crisis average rate of 6.0% for 1990–2008 (Chart 4).

In addition to creating a permanent shift downward in the level of trade, the global recession of 2008-09 may have reduced its average growth rate as well. The average rate of trade expansion in the three years since 2010 is 3.42%.

Forecasts for 2014 and 2015, if correct, would raise the average to 4%, but this rate is insufficient to narrow the existing gap, WTO explained.

For more, see the full release here.

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