We were too optimistic: WTO

Slashes merchandise trade growth estimates for last year, this one and the next; points to numerous downside risks in even these; act sensibly in concert, D-G appeals to govts

Exporters have to wait longer for good times. The World Trade Organisation (WTO) on Tuesday projected growth of global merchandise trade at 3.3 per cent in volume terms in 2015, much below the original forecast of five per cent and even the revised truncated projection of four per cent. And, it says merchandise trade will grow no more than four per cent in 2016. Even these projections face downside risks, WTO stated.

Trade grew only 2.8 per cent in 2014, less than WTO's original forecast of 4.7 per cent and the revised forecast of 3.1 per cent. Even the trade growth pegged for 2016 is below the annual average of 5.1 per cent since 1990, and well below the pre-global crisis average of six per cent.

India had a contraction in merchandise export for a third consecutive month in February. The trade data for March is likely to come on Wednesday. And, Chinese exports shrank 15 per cent in March.

Risks

“We expect trade to continue its slow recovery but with economic growth still fragile and continued geopolitical tensions, this trend could easily be undermined,” said WTO Director-General Roberto Azevedo.

WTO economists also cautioned that the presence of several risk factors added to the uncertainty of their estimates.

The most prominent risk is the divergence of monetary policies in America and the euro zone. The US Federal Reserve contemplates raising of interest rates later this year, while the European Central Bank has just started a programme of quantitative easing.

Other risks include a re-flaring of the debt crisis in the euro area and a stronger-than-expected slowing in emerging markets. Particularly in resource-exporting regions such as Africa, West Asia, the Commonwealth of Independent States and South America.

Appeal

Azevedo appealed for governments to act sensibly. “But, we are not powerless in the face of this gloomy picture...By withdrawing protectionist measures, improving market access, avoiding policies which distort competition and striving to agree on reforms to global trade rules, governments can boost trade and seize the opportunities that it offers for everyone,” he said. The modest gain in 2014, from 2.1 per cent in 2013, marked the third year in which trade grew less than three per cent. The Organisation said trade growth averaged only 2.4 per cent annually between 2012 and 2014, the slowest rate on record for a three-year period when trade was expanding (excluding years like 1975 and 2009, when world trade actually declined).

“There has only been one other period since the second world war in which trade growth has been so weak, and that was from 1980 to 1984. However, that period included two outright contractions in trade, due to the oil shock and the global recession of 1980-1981,” Azevedo said.

In contrast, the current trade slump has come during a period of continued but modest economic growth, he noted.

IMF

Meanwhile, the International Monetary Fund maintained its forecast for global growth this year at 3.5 per cent. For 2016, the IMF now expects global gross domestic product to expand 3.8 per cent, up from the 3.7 percent it forecast in January.

WTO reasons

The long-standing trend of trade growing about twice as fast as GDP appears to have broken, making forecasting particularly difficult, WTO said.

It said actual trade growth in 2014 was close to its most recent forecast of 3.1 per cent from last September but below the 4.7 per cent rise predicted at this time last year. “A number of factors contributed to our initial overestimate, most of which could not have been anticipated,” WTO said. The sharp declines in commodity prices since last July were not foreseen and did not figure in last year's estimates, it added.

The oil price drop was driven by surging production in North America but falling demand in emerging markets also played a part, as it did with other commodities.

“One year ago, economic forecasters were predicting above-trend GDP growth in the US and near-trend growth in the euro area in 2014. Both predictions promised to support stronger trade growth but neither materialised, as a mix of strong and weak quarterly results in the United States only produced average growth for the year, while activity in the euro area was consistently mediocre,” WTO said.

Geopolitical tensions and natural phenomena also weighed on trade growth last year. The crisis in Ukraine persisted through the year, straining trade relations between Russia on the one hand and America and the European Union on the other.

“Conflict in the Middle East also stoked regional instability, as did an outbreak of ebola haemorrhagic fever in West Africa. Finally, declines in first quarter trade and output in the United States were attributed to unusually harsh winter weather,” it said.