Decline in global merchandise trade volumes to continue for now: WTO

Situation to worsen as estimates don't take into account coronavirus outbreak

The current decline in global merchandise trade volumes is expected to continue in the early months of 2020, as uncertain business conditions fueled by protectionism further reduce export orders in key sectors, the World Trade Organization (WTO) has said.

The global body’s Goods Trade Barometer (GTB) on Monday signaled further weakening of trade volumes in fourth quarter of 2019 and first quarter of 2020. 

“World merchandise trade volume was 0.2 per cent lower in Q3 2019, relative to the same quarter in 2018 in line with expectations from the barometer index of November 2019,” the WTO said.

The GTB provides real-time information on the trajectory of world trade relative to recent trends. Its latest estimates showed a reading of 95.5, suggesting a further weakening after merchandise trade growth slowed during the first quarter of 2019. Readings of 100 indicate growth in line with medium-term trends, while readings greater than and below 100 indicate above-trend and below-trend growth, respectively. The direction of change reflects momentum compared to the previous month.

The latest barometer reading is driven by further drops in container shipping (94.8) and agricultural raw materials (90.9), as well as the plateauing of growth for automotive products. However, the WTO said decline in export orders (98.5) and electronic components (92.8) appeared to be stabilising, and the weak performance of air freight (94.6) throughout 2019 seemed to have bottomed out. 

Fall before revival

India’s exports contracted 1.6 per cent in January, the sixth straight month of fall, as major foreign exchange earning sectors such as engineering goods, jewellery, and textiles continued to be plagued by broad-based contraction. This occurred despite India’s biggest exports — petroleum — picking up. Exports have fallen in seven of the 10 months of financial year 2019-20 (FY20). Till January, cumulative exports stood at $265.3 billion, which is 1.9 per cent lower than in the corresponding period in the previous fiscal year.

The WTO said growth prospects for global trade remained shaky over the past two years, without even factoring in the latest coronavirus outbreak in manufacturing powerhouse China. As a result, the data of the goods trade barometer may actually show further decline.  

However, other global bodies are betting on a sharp recovery. Last month, the International Monetary Fund lowered global economic growth forecast in 2020 to 3.3 per cent, following a 2.9 per cent growth the previous year, the lowest in a decade. But World Bank said despite persisting downward risks, global economic growth was forecast to edge up to 2.5 per cent in 2020 as investment and trade gradually recover from last year’s significant weakness.

Corona hurdle severe

However, most of the latest macro estimations calculations do not account for recent developments such as the outbreak of COVID-19, the new coronavirus disease, which may dampen trade prospects further. Commentators have pointed out this will give a major blow to manufacturing in East Asia and trade patterns worldwide.

But China continues to insist the breakout, now officially classified as an epidemic by the World Health Organization, is on the verge of being completely stabilised and factories will open soon. Earlier this month, Chinese officials brought up the issue at a meeting of the WTO Special Committee on Customs Cooperation and Trade Facilitation. They reportedly asked nations to respect the authority and professional advice from the World Health Organization (WHO), and to prevent excessive reactions by imposing unnecessary restrictions.

Recently, China asked the members of the WTO to abstain from implementing unnecessary restrictions to trade with the Asian country as a pretext to prevent the outbreak of the Covid-19 coronavirus.

Protectionism pangs

• WTO says trade-restrictive measures by G-20 nations remain at historic highs 
• The same have shot up as the WTO’s dispute settlement court has become defunct since Dec
• For 2019, merchandise trade volumes forecasts have been sharply cut to 1.2% from 2.6%
• Phase 1 of the US-China trade deal came into force on Friday with tariffs being cut on $195 bn of goods