The new WTO forecast estimates world GDP at market exchange rates will grow by 2.8 per cent in 2022 and 2.3 per cent in 2023 — the latter is 1.0 percentage points lower than what was previously projected.
World trade is expected to lose momentum in the second half of 2022 and remain subdued in 2023 as multiple shocks weigh on the global economy. WTO economists now predict global merchandise trade volumes will grow by 3.5 per cent in 2022 — slightly better than the 3.0 per cent forecast in April. For 2023, however, they foresee a 1.0 per cent increase — down sharply from the previous estimate of 3.4 per cent.
Import demand is expected to soften as growth slows in major economies for different reasons. In Europe, high energy prices stemming from the Russia-Ukraine war will squeeze household spending and raise manufacturing costs. In the United States, monetary policy tightening will hit interest-sensitive spending in areas such as housing, motor vehicles and fixed investment. China continues to grapple with COVID-19 outbreaks and production disruptions paired with weak external demand. Finally, growing import bills for fuels, food and fertilizers could lead to food insecurity and debt distress in developing countries.
“Policymakers are confronted with unenviable choices as they try to find an optimal balance among tackling inflation, maintaining full employment, and advancing important policy goals such as transitioning to clean energy. Trade is a vital tool for enhancing the global supply of goods and services, as well as for lowering the cost of getting to net-zero carbon emissions,” Director-General Ngozi Okonjo-Iweala said.
“While trade restrictions may be a tempting response to the supply vulnerabilities that have been exposed by the shocks of the past two years, a retrenchment of global supply chains would only deepen inflationary pressures, leading to slower economic growth and reduced living standards over time. What we need is a deeper, more diversified and less concentrated base for producing goods and services. In addition to boosting economic growth, this would contribute to supply resilience and long-term price stability by mitigating exposure to extreme weather events and other localized disruptions. The success of the WTO’s 12th Ministerial Conference (MC12) in June is proof that with sufficient political will, members can cooperate and move forward together.”
2023 estimates overly optimistic
The new WTO forecast estimates world GDP at market exchange rates will grow by 2.8 per cent in 2022 and 2.3 per cent in 2023 — the latter is 1.0 percentage points lower than what was previously projected.
In their April forecast, released only weeks after the start of the war in Ukraine, WTO economists had to rely on simulations to generate reasonable growth assumptions, in the absence of hard data about the war’s impact. As events have unfolded, the WTO’s GDP projections for 2022 turned out to be broadly correct. The estimates for 2023, however, now appear overly optimistic, as energy prices have skyrocketed, inflation has become more broad-based, and the war shows no sign of letting up.
If the current forecast is realized, trade growth will slow sharply but remain positive in 2023. It should be noted that there is a high degree of uncertainty associated with the forecast due to shifting monetary policy in advanced economies and the unpredictable nature of the Russia-Ukraine war. If current assumptions hold, trade growth in 2022 could end up between 2.0 per cent and 4.9 per cent. If the downside risks materialize, trade growth in 2023 could then be as low as -2.8 per cent. If the surprises are on the upside, however, trade growth next year could be high as 4.6 per cent. Trade could also finish outside of these bounds if any of the underlying assumptions change.
The Ukraine crisis has pushed up prices for primary commodities, particularly fuels, food, and fertilizers. In August, energy prices were up 78 per cent year-on-year, led by natural gas, which was up 250 per cent. The 36 per cent increase in the price of crude oil over the same period was small by comparison but still significant for consumers.
Image: Hippopx, licensed to use under Creative Commons Zero – CC0
