Thursday, April 7, 2016

Trade growth to remain subdued in 2016 as uncertainties weigh on global demand

Growth in the volume of world trade is expected to remain sluggish in 2016 at 2.8 per cent, unchanged from the 2.8 per cent increase registered in 2015, according to the World Trade Organisation (WTO).
Imports of developed countries should moderate this year while demand for imported goods in developing Asian economies should pick up, WTO economists reported adding that global trade growth should rise to 3.6 per cent in 2017.
Risks to the forecast are mostly on the downside, including a sharper than expected slowing of the Chinese economy, worsening financial market volatility, and exposure of countries with large foreign debts to sharp exchange rate movements, the report read. "On the other hand, there is some upside potential, if monetary support from the European Central Bank (ECB) succeeds in generating faster growth in the euro area," it said today.
"Trade is still registering positive growth, albeit at a disappointing rate,” WTO director-general Roberto Azevêdo said, adding that it will be the fifth consecutive year of trade growth below 3 per cent. "Moreover, while the volume of global trade is growing, its value has fallen because of shifting exchange rates and falls in commodity prices."
It could undermine fragile economic growth in vulnerable developing countries," he said, adding that there remains as well the threat of creeping protectionism as many governments continue to apply trade restrictions and the stock of these barriers continues to grow. "However, we should keep these figures in perspective."
WTO members can take a number steps to use trade to lift global economic growth from rolling back trade restrictive measures, to implementing the WTO Trade Facilitation Agreement. "The agreement will dramatically cut trade costs around the world, thereby potentially boosting trade by up to $1 trillion a year,” Azevêdo added. “More can also be done to address remaining tariff and non-tariff barriers on exports of agricultural and manufactured goods.”
On the basis of the forecast for 2016, world trade will have grown at roughly the same rate as world GDP for five years – at market exchange rates – rather than twice as fast as was previously the case. Such a long, uninterrupted spell of slow but positive trade growth is unprecedented, but its importance should not be exaggerated. Overall, trade growth was weaker between 1980 and 1985, when five out of six years were below 3 per cent, including two years of outright contraction.
Alternative indicators of economic and trade activity in the opening months of 2016 are mixed, with some pointing to a firming of trade and output growth while others suggest some slowing. On the positive side, container throughput at major ports has recovered much of the ground lost to the trade slowdown last year, while automobile sales – one of the best early signals of trade downturns – have continued to grow at a healthy pace in developed countries. On the other hand, composite leading indicators from the Organisation for Economic Cooperation and Development (OECD) point to an easing of growth in OECD countries, and financial market volatility has continued in 2016.  Therefore trade growth may remain volatile in 2016.


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