TNC Rajagopalan: WTO trade figures bring some cheer to exporters

EXIM MATTERS

The World Trade Organisation (WTO) has released its trade figures for 2003 and outlook for 2004. International trade is likely to grow 5.7 per cent in 2004, against 4.5 per cent in 2003, says the report.

For exporters worried about the impact of the sharp appreciation of the rupee, the prospects of greater market expansion should be good news.

The report says in 2003 the transition economies in East Europe and East Asian regions posted highest trade growth of about 10-12 per cent, with China registering an export growth of about 35 per cent and an import growth of about 40 per cent.

European Union and Latin America continued to languish, while parts of Africa grew faster. South Africa, in particular, posted a trade growth of 30 per cent. Exports from developing countries grew 17 per cent, says the report, tacitly suggesting that globalisation does benefit the poorer countries.

The US continued to be a major driver of export growth for many countries with its import growth far exceeding the export growth for the third consecutive year. The US may find it difficult to sustain its trade deficit, at $542 billion in 2003, which forms 4.9 per cent of its GDP.

A stronger than expected rise in US private savings ratio, triggered either by a decline in house or stock prices, could lead to a slower than expected increase in its imports, with negative repercussions on exports of countries dependent on the US market.

The WTO report says Western Europe's demand recovery could falter and growth in fixed investments could be dampened if the real appreciation of Euro continues.

Moreover, consumer expenditure could also be weaker if the uncertainty about the financial reforms in the pension and health systems lead to a market rise in precautionary savings.

The commodity price and exchange rate changes led to a 10.5 per cent increase in world merchandise prices in 2003. More important, for the first time since 1995, dollar prices increased for both manufactured and agricultural prices.

The report does not explain whether the rise in the prices of farm products has anything to do with de-coupling the subsidies from production by EU and gradual reduction in export subsidies by the developed countries.

Temporary supply shortfalls because of the Iraq war and strikes in Venezuela coupled with surging demand, especially from China and the US, contributed to a 16 per cent rise in fuel prices in 2003.

If oil prices continue to rise, the projected growth rates may not be achieved, says the report. Indian exporters can pick up the message from the report that if they put in more efforts in transition economies, East Asia, Africa and other developing countries, the present growth momentum in those regions might help them get quicker results.

On the other hand, they will have to contend with the strong probability that the US dollar might continue to weaken.

The Foreign Direct Investment (FDI) flows remained flat at a five-year low of about $600 billion. The developing countries got reduced FDI flows in 2003 and more of other capital flows.

If the trend continues, the trade will have to contend with the unfamiliar spectre of destabilising uncertainties of hot money inflows with attendant consequences on exchange rates, interest rates and inflation.

tncr@sify.com