WTO economists expect modest upturn in world trade growth in next two years after recent sluggish trend.
WORLD trade is expected to grow a modest 4.7% in 2014 and at a slightly faster rate of 5.3% in 2015, World Trade Organization economists reported April 14.
Although the forecast for 2014 is more than double the growth rate of 2.1% for 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 economies (4.4%), WTO said. On the export side, both developed and developing economies managed to record only small, positive increases: 1.5% for developed economies and 3.3% for developing economies.
Developing economies' trade flows turned negative in mid-2013 as exports and imports each fell 1% between the first and second half. Developed economies staged a modest recovery, with exports and imports rising 1.0% 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 Europe's 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 U.S.
The latter contributed to financial volatility in developing economies in the second half of 2013, particularly in certain emerging economies with large account imbalances.
However, WTO reported that an improvement in U.S. employment should allow the Fed to proceed with the planned tapering of its third round of quantitative easing, which will assist in the overall economic recovery.
Overall, exports in the second half of the year were up for the U.S. (3.3%), intra-European Union (2.0%) and Japan (1.2%), while exports were flat (0.0%) for developing Asia and slightly negative (-1.5%) for extra-EU.
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 EU 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 one to two years, the WTO economists noted.
Despite having hit a soft patch recently, developing economies (including China) should continue to outpace developed economies in terms of gross domestic product (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 forecast of 4.7% growth in world merchandise trade for 2014 is not only below the average rate for the last 20 years but also below the pre-financial crisis average rate of 6.0% for 1990-2008 (Figure).
In addition to creating a permanent shift downward in the level of trade, the global recession of 2008-09 may have reduced the 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 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 Azevedo 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."
He suggested that members can "support trade growth by updating the rules and reaching new trade agreements. The (WTO ministerial) deal in Bali last December illustrates this.
"Concluding the Doha Round would provide a strong foundation for trade in the future and a powerful stimulus in today's slow growth environment," Azevedo added. "We are currently discussing new ideas and new approaches which would help us to get the job done — and to do it quickly."