WTO halves global merchandise trade growth projection for 2023

The World Trade Organization on Thursday scaled back projections for global merchandise trade growth to 0.8%, less than half the 1.7% increase it had forecast in April, citing persistent global inflation and tighter monetary policy in the backdrop of the Russia-Ukraine war.

The projections come amid already slowing goods exports from India. Goods exports in August slipped for the seventh successive month with the goods trade deficit hitting a 10-month high.

Official data released earlier showed that India’s current account deficit (CAD) widened to $9.2 billion in the June quarter from $1.3 billion in the preceding three months, increasing pressure on the rupee.

World trade and output slowed "abruptly" in the fourth quarter of 2022 as the effects of persistent inflation and tighter monetary policy were felt in the United States, the European Union and elsewhere, and as strained property markets in China prevented a stronger post-covid recovery from taking root, WTO said.

“The projected slowdown in trade for 2023 is cause for concern because of the adverse implications for the living standards of people around the world. Global economic fragmentation would only make these challenges worse, which is why WTO members must seize the opportunity to strengthen the global trading framework by avoiding protectionism and fostering a more resilient and inclusive global economy," WTO director-general Ngozi Okonjo-Iweala said.

The global economy, and in particular poor countries, will struggle to recover without a stable, open, predictable, rules-based and fair multilateral trading system, she warned.

WTO said that global commercial services trade may be moderating following last year's strong rebounds in transport and travel. This could be a concern for India. World commercial services trade was up 9% year-on-year in the first quarter of 2023 compared to a 19% year-on-year rise in the second quarter of 2022.

India's services exports have acted as a cushion over the last 12 months, during which goods exports have weakened due to slowing demand. India's services exports, after growing at 26.7% in 2022-23, shrank 0.4% in August to $26.39 billion.

Notably, global commercial services trade is not covered by the WTO forecast. However, WTO said trade growth should pick up next year, accompanied by slow but stable GDP growth, and that sectors that are more sensitive to business cycles should stabilise and rebound as inflation moderates and interest rates start to fall.

"...signs are starting to emerge of supply-chain fragmentation, which could threaten the relatively positive outlook for 2024. For example, the share of intermediate goods in world trade, an indicator of global supply chain activity, fell to 48.5% in the first half of 2023 compared to an average of 51.0% over the previous three years," the report said

“We do see some signs in the data of trade fragmentation linked to geopolitical tensions. Fortunately, broader deglobalisation is not here yet. The data suggest that goods continue to be produced through complex supply chains, but that the extent of these chains may have plateaued, at least in the short run. Positive export and import volume growth should resume in 2024 but we must remain vigilant,” WTO chief economist Ralph Ossa said.