A continued slump in goods trade that began in the fourth quarter of 2022 has led WTO economists to scale back their trade projections for the current year while maintaining a more positive outlook for 2024. The volume of world merchandise trade is now expected to grow by 0.8% this year, down from the 1.7% forecast in April, while the 3.3% growth projected for 2024 remains nearly unchanged from the previous estimate.
Trade volume and GDP growth 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. Still, 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 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.
The WTO now expects world merchandise trade volume growth of 0.8% in 2023 – down from 1.7%. The April forecast is accompanied by real GDP growth of 2.6% at market exchange rates (see Chart 1). Trade growth should then pick up to 3.3% in 2024 – nearly unchanged from the previous 3.2% estimate in April – with a stable GDP growth of 2.5%. 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. A notable exception is passenger vehicles, sales of which have surged in 2023. 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 (see Chart 2). The trade slump in the fourth quarter of 2022 should also inflate year-on-year growth towards the end of the year. 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.
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. 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 do see some signs in the data of trade fragmentation linked to geopolitical tensions, but so far there is no evidence of a broader deglobalization trend that could weigh more heavily on trade.
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 (see Chart 3). The price of crude oil peaked in June 2022 while natural gas prices hit an all-time high in August of that year. 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.
