WTO cuts global trade growth to 1.7% in 2016

This is well below WTO's April forecast of 2.8%; forecast for 2017 also revised downwards, to 1.8-3.1% from from 3.6% previously

Global trade is expected to grow at its slowest pace in 2016 since the 2009 financial crisis gripped the world, the World Trade Organization said on Tuesday.

The intergovernmental organisation revised its estimates for global trade growth, saying it would expand by just 1.7 per cent.

In September 2015, the WTO estimated that global trade would rise 3.9 per cent in 2016. It had lowered that projection to 2.8 per cent in April.

Besides a global slowdown, the severe fall was attributed to global factors such as a decline in commodity prices due to a glut in supply amid low demand as well as sluggishness in the Chinese and European economies, among others. The trade growth forecast for 2017 has also been revised, with trade now expected to grow between 1.8 per cent and 3.1 per cent, down from 3.6 per cent previously.

Slowing world trade will have implications for India. Exports had fallen for the second consecutive month in August, going down by a marginal 0.3 per cent. The country’s outbound trade has fallen for a staggering 20 out of 21 months till August. In 2015-16, India’s exports had stood at $261 billion, 15.85 per cent decline from $310 billion in the year before.

While the government had targeted $300 billion from exports, the figure had to be revised to $260-270 billion after merchandise trade remained negative throughout the last financial year.

The government is yet to declare an export target this year. With global GDP growth expected to be 2.2 per cent in 2016, this year would mark the slowest pace of trade and output growth since the financial crisis of 2009. If the revised projection holds, 2016 will be the first time in 15 years that the ratio between trade growth and world GDP growth will fall below 1:1, WTO Director-General Roberto Azevedo said.

“The contraction was driven (not only) by slowing GDP and trade growth in developing economies such as China and Brazil but also in North America, which had the strongest import growth of any region in 2014-15, but has decelerated since then,” the WTO stated.

The data underlined concerns that after a long period of growth through globalisation and reliance on global trade, governments are increasingly seeking to protect their own industries during a period of economic difficulty and economies are increasingly driven by domestic consumption. Although all governments deny protectionism, trade is no longer outpacing economic growth as it used to. Trade has grown 1.5 times faster than gross domestic product over the long term, and twice as fast when globalisation picked up in the 1990s. This year, trade would grow only 80 per cent as fast as the global economy, the WTO said.

Last week, the government had announced additional incentives worth Rs 1,500 crore under the Merchandise Exports from India Scheme to give a boost to exports, and the number of items covered also was raised from 5,012 to 7,913. The rate of incentives was also increased for certain products.

Even if exports go up due to the low base effect, it might be erratic and might not survive for a long period, economist D K Joshi from CRISIL said. “The global trade to GDP ratio is going down as the need for a structural change to improve the trade momentum of economies becomes evident,” he added.