Global downturn fears spark calls for new perspective on trade

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Influential bodies including the OECD and the IMF have highlighted the risk of an imminent global economic downturn, prompting the WTO to call for some 'out of the box' thinking.

As countries around the world continue to face challenges including the consequences of Russia's invasion of Ukraine and the lingering effects of the COVID-19 pandemic, concerns are growing around the possibility of a global economic downturn.

The Organisation for Economic Cooperation and Development (OECD) and the International Monetary Fund (IMF) are among the influential bodies that have warned of a gloomy outlook for the world economy.

Given the importance of trade to economic growth and market development, the World Trade Organization (WTO) has emphasized the need for innovation and a focus on long-term recovery to mitigate the effects of a downturn.

Is a downturn on the cards?

The OECD has just released its Interim Economic Outlook, which warned of a "pervasive global economic slowdown". 

It provided a "modest" global growth projection of three percent for 2022 and 2.2 percent for 2023. These figures are significantly below the rate of expansion predicted before Russia's invasion of Ukraine and, if they prove accurate, would equate to US$2.8 trillion of lost global output next year.

In July this year, the IMF warned that the global economy is "facing an increasingly gloomy and uncertain outlook", with many of the downside risks highlighted in the agency's April World Economic Outlook now starting to materialize.

Pierre-Olivier Gourinchas, IMF economic counselor and director of research, said the economic picture had "darkened significantly" since April.

"The world may soon be teetering on the edge of a global recession, only two years after the last one," he added.

The trade perspective

Trade between countries and blocs around the world is a fundamental component of the global economy, so any significant downturn that emerges in the coming years will have undeniable repercussions for import and export volumes, regional demand and costs.

The WTO has stressed that, during times of economic adversity, it's important to take a fresh perspective on trade and not simply hope for "business as usual".

Recent research by the organization has provided further evidence of the challenges that exist at the moment, with the latest Goods Trade Barometer hinting at stagnating global trade growth.

Data for the second quarter of 2022 showed ongoing growth in global goods trade, but the rate of increase was slower than in Q1 and is expected to remain weak throughout the second half of the year.

Speaking at the WTO's Public Forum 2022, Ngozi Okonjo-Iweala, director-general of the organization, stated clearly that the world is currently in "a very difficult place". She highlighted security, climate change, energy costs and food prices as some of the most significant recent shocks countries have had to contend with.

In light of all this adversity, Ms Okonjo-Iweala argued: "We cannot afford to do business as usual. We have to be able to think out of the box and we have to accomplish things."

Asked specifically about the state of the global economy, the director-general said WTO economists were working on revisions to the annual trade forecast issued in April, but "the indicators are not looking too good".

"I think we're edging into [a global recession] but at the same time, we have to start thinking of the recovery," Ms Okonjo-Iweala added. "We have to restore growth. It's too important, especially for poorer members of the WTO. We have to think of what we need to do, what policies we need to pursue to restore growth."

Looking to the future, the WTO said there is cause for optimism in some areas, including the accords reached at the 12th Ministerial Conference in June. The event saw members reach agreements on issues such as tackling export restrictions on emergency food purchases by the World Food Programme, facilitating production of COVID-19 vaccines in developing countries and managing the depletion of fish stocks.

Ongoing cooperation between international organizations, trade partners and other stakeholders looks set to prove increasingly important in the coming years, as the world economy faces the threat of a potentially damaging downturn.