WTO Revises Trade Forecast Lower for 2019

“With trade tensions running high, no one should be surprised by this outlook,” said WTO Director-General Roberto Azevêdo. “Trade cannot play its full role in driving growth when we see such high levels of uncertainty.”

In September 2018, the WTO expected 2018 trade growth would be 3.9 percent, but a drop in exports and imports in the fourth quarter dashed that projection. World trade, as measured by the average of exports, declined by 0.3 percent in the fourth quarter after growing 3.8 percent in the third quarter.

Trade growth in 2018 faced numerous challenges including new tariffs and retaliatory measures that affected widely traded goods. Global economic growth was weaker, financial markets were volatile and monetary conditions tightened in developed countries. It is estimated that world GDP growth, at 2.9 percent in 2018, will slow to 2.6 percent in 2019 and 2020.

Outlook indices have also turned negative in recent months, including the WTO’s World Trade Outlook Indicator (WTOI). In February, the WTOI index fell to 96.3, below its baseline value of 100, indicating slowing trade growth into the first quarter of 2019. Air freight shipments were down 3.0 percent year-over-year in January, according to the International Air Transport Association (IATA). A measure of global export orders derived from purchasing managers’ indices dropped into contraction at 49.1 in February. Taken together, said the WTO, the data points to continued trade weakness in the first half of 2019.

An index of economic policy uncertainty, measured by the frequency of phrases related to uncertainty in media reports, rose throughout 2018, peaking in December and coinciding with the U.S. government shutdown and U.S./China trade negotiations.

“To the extent that economic uncertainty deters investment, it can have a negative impact on trade since capital goods tend to have high import content,” said the WTO in its report. “Conversely, a lowering of trade tensions would be expected to stimulate both investment and trade.”

If current GDP forecasts are realized, the WTO expects the volume of world merchandise trade to grow by 2.6 percent in 2019 (down 3.0 percent from 2018) with stronger expansion in developing economies (3.4 percent for exports, 3.6 percent for imports) than in developed ones (2.1 percent for exports, 1.9 percent for imports).

World trade growth should pick up slightly in 2020 to 3.0 percent, with growth in developing economies (3.7 percent for exports, 3.9 percent for imports) again outpacing developed countries (2.5 percent for exports, 1.9 percent for imports).

Risks remain on the downside, said the WTO, with “upside potential hinging on a relaxation of trade tensions.”

Said Azevêdo, “Greater uncertainty means lower investment and consumption. Investment, in particular, has a pronounced impact on trade, and this is reflected in numbers. We outlined these downside risks in our previous forecasts.

“We all need trade to play its positive role supporting jobs, growth and development around the world. And we need the rules-based trading system to play its full role in facilitating trade flows and providing stability in international economic relations. It is therefore increasingly urgent that we resolve tensions and focus on charting a positive path forward for global trade which responds to the real challenges in today’s economy.”