Growth in global trade flows will be dramatically lower than expected in 2023, according to a report issued Wednesday by the World Trade Organization, as Russia’s invasion of Ukraine and global central banks’ efforts to fight inflation continue to take a toll.
The WTO projected that after expanding at a 3.5% pace in 2022, growth in the trade of goods in 2023 will plunge to just 1%. That’s considerably below the agency’s most recent estimate from April, which had trade expanding at a 3.4% clip next year.
WTO analysts cited various causes for the expected slowdown. Among other things, the increase in the price of energy, staple foods, fertilizer and other goods brought on by the war in Ukraine will continue reducing consumer spending on other items. Additionally, interest rate hikes in the United States and other advanced economies are expected to constrain consumers further, while China’s continuing struggle to manage COVID-19 has created ongoing production problems.
"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,” WTO Director General Ngozi Okonjo-Iweala said in a statement.
‘No surprise’
Jake Colvin, president of the National Foreign Trade Council, told VOA that even without the geopolitical shock of Russia’s invasion of Ukraine and problems with the global supply chain arising from the COVID-19 pandemic, there were other factors that made a slowdown in trade growth likely.
“It's no surprise that while the party was raging for the global economy in the wake of COVID lockdowns, that the inflation hangover is real,” Colvin said. “There's likely to be downward pressure on global trade for the foreseeable future, as this report points out, because of persistently high inflation, as well as ongoing supply chain challenges.”
Colvin pointed out that the recent surge in the strength of the U.S. dollar against other global currencies would also complicate trade issues.
“The world is grappling with the strength of the U.S. dollar,” he said. “Obviously, a strong U.S. dollar is good for U.S. consumers. It makes imports less expensive. But it makes U.S. exports more expensive. So, a strong U.S. dollar is always a headwind for American exporters. And it also is a challenge for countries around the world that have to buy things in dollars, including energy.”
Growth projections vary
The 2023 growth rates for North America and Asia are expected to be slightly above the global trend, at 1.4% and 1.1%. However, they will be significantly lower than in 2022. The WTO projects that North America will end this year with a 3.4% growth in trade, while Asia will experience 2.9% growth.
Regions projected to have positive but below average growth in 2023 include Europe at 0.8% and South America at 0.3%. That compares with projected full-year 2022 growth of 1.8% for Europe and 1.6% for South America.
Regions that can expect negative growth are Africa at -1.0% and the Middle East at -1.5%. However, both are expected to end 2022 with annual growth much higher than the global average, with Africa at 6.0% and the Middle East at 14.6%.
The seventh region in the assessment is the Commonwealth of Independent States (CIS), a free trade bloc made up primarily of former satellite states of the Soviet Union and dominated by Russia. The data indicate that the CIS will see growth of 3.3% next year. However, the report said, that apparent growth will reflect only a partial recovery from the sharp -5.8% slowdown in trade growth the bloc is projected to have suffered by the end of 2022.
China’s challenges
The decline in forecast growth for Asia is driven in large part by China, which is experiencing reversals in imports and exports. This is the result of a combination of factors, but the most notable among them is COVID-19.
“The zero-COVID policy that President Xi [Jinping] has been pursuing … really put the squeeze on the Chinese economy,” Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics, told VOA. “Production is not there for what could be many export orders. Sometimes the ports are just not functioning as they normally do, so that really has hit the exports.”
He continued, “At the same time, China is a big importer, from [around] the world, and especially from many developing countries, which send a combination of raw materials and intermediate products to China, which are then made into finished products. … So China's imports have been pretty slow lately, and this is hurting all its trading partners around the world.”
Spillover effects
In addition to a slowdown in orders from China, countries in the developing world are likely to see fewer orders for their goods from the U.S. and Europe than they have in the past, due in part to consumers being constrained by inflation and high interest rates.
Developing countries are facing the pernicious combination of lower revenues from exports, higher energy and fertilizer prices, and disruption in the global food supply. Added to that is the rising value of the U.S. dollar, which many developing countries need to purchase in order to transact business internationally.
A major concern, according to the WTO, is that this “could lead to food insecurity and debt distress in developing countries.”
Warning on restrictions
Okonjo-Iweala warned countries against reacting to Wednesday’s report by imposing export bans and taking other restrictive trade measures.
“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,” Okonjo-Iweala said.
“What we need is a deeper, more diversified and less concentrated base for producing goods and services,” she added. “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.”