Last week, economists at the World Trade Organisation (WTO) forecast a growth in world trade by a modest 4.7% in 2014 and a more optimistic 5.3% in 2015, following two years of sluggish 2.1% average growth. There is, however, anxiety on whether our exporters can benefit fully from this spurt in global trade growth.
The WTO forecast for 2014 is premised on an assumption of 3% growth in global gross domestic product (GDP) at market exchange rates, while the forecast for 2015 assumes output growth of 3.1%.
The report also says the risks to the trade forecast are still mostly on the downside. There is some upside potential, particularly since trade in developed economies is starting from a low base. Even so, volatility is likely to be a defining feature of 2014 as monetary policy in developed economies becomes less accommodative.
Some developed economy risk factors have receded considerably since last year. These include the sovereign debt crisis in Europe and fiscal brinksmanship between the executive and legislative branches of government in America.
Developing economies are now the focus of several gathering risks. These include large current account deficits or CAD (India, Turkey), currency crisis (Argentina), overinvestment in productive capacity and rebalancing of economies to rely more on domestic consumption and less on external demand.
Geopolitical risks have introduced an additional element of uncertainty to the forecast. Civil conflicts and territorial disputes in North Africa/West Asia, other parts of Asia and in Eastern Europe could provoke higher energy prices and disrupt trade flows if these escalate. However, since the timing and impact of such risks are inherently unpredictable, these are not considered directly in the forecasts.
WTO bases its optimism on recent business surveys and industrial production data that point to a firming of the recovery in America and Europe in early 2014. The gradual improvement of US employment data has allowed the Federal Reserve to proceed with its planned “tapering”, of their third round of quantitative easing. The outlook for the European Union has also improved, although growth there will remain uneven as long as peripheral EU economies continue to under-perform core ones.
Output growth in Japan should be slightly lower this year as planned fiscal consolidation is implemented. Finally, despite having hit a soft patch recently, developing economies (including China) should continue to outpace developed ones in terms of GDP and trade growth in the coming year but some could encounter setbacks, particularly those most exposed to the recalibration of monetary policy in developed countries.
Responding to the WTO forecast, M Rafeeque Ahmed, president, Federation of Indian Export Organisations (FIEO) called it a very positive sign for India. Our export growth has been roughly double the global trade growth and so, we should expect a minimum of 10% increase in exports during 2014.
During 2005-13, world trade grew by 7.35% on an annual average, while India’s average exports jumped 15.7% annually. However, since our exports grew by only about four% in 2013-14, we should aim at a 15% increase in exports to about $360 billion in 2014-15, said the FIEO chief.
However, worries persist that our exporters will not benefit much from a higher global growth rate due to strengthening of the rupee, caused by large foreign institutional investor inflow into the equity and bond markets.
email: tncr@sify.com
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