A new report from the UN has highlighted the state of global trade in 2022. Most notably, having reached new heights earlier in the year, volumes have taken a downturn in Q3.
Despite global uncertainty and the continued recovery from the pandemic, trade in goods has grown significantly to surpass $25 trillion in 2022, signifying a year-on-year increase of approximately ten percent. Simultaneously, trade in services has grown to a total of $7 trillion, fulfilling a rise of 15 percent in the same time. These figures are attributed to robust growth in the first half of the year.
However, during Q3, trade in goods decreased by roughly one percent compared to Q2, while trade in services saw an increase of approximately 1.3 percent at the same time. The UNCTAD report estimates the value of global trade to decrease throughout Q4 for both goods and services.
The slowdown of global trade at the end of this year alludes to gloomy economic conditions to come in 2023, as energy prices continue to soar alongside rising interest rates, combined with an increase in the costs of intermediate inputs and consumer goods.
Why are global trade values dipping?
The main factors of the global trade slowdown include uncertain and diminishing economic conditions. However, the decline is not significantly worrying, as the resilience showed in 2022 points toward a more positive outlook.
A significant component in the decline of the value of international trade during the latter half of this year has been sharp increases in the prices of primary products, namely energy. On the other hand, the prices of consumer goods and intermediate inputs have also increased in the same time frame, highlighting fresh concerns about global inflation.
So far, the decline in the value of global trade has been limited to goods. Services have seen much more resilience and have continued to increase throughout the entire year. It is to be expected that the global trade slowdown continues into the first half of the new year, as positive trends are somewhat outweighed by negative factors.
The pandemic and lockdown produced huge supply chain disruptions across the globe. Ports and shipping companies have adjusted well to the consequences of COVID-19, with new vessels entering service and port congestion largely resolved.
Several promising trade agreements, including the Regional Comprehensive Economic Partnership in the Asia-Pacific (RCEP) and the African Continental Free Trade Area (AfCFTA), have been signed recently. Deals like these represent promise for the near future and are expected to come to fruition, providing much-needed momentum for the entire international system.
Other positive factors include East Asian trade, which demonstrated particular strength in 2022, standing as the only trade region in which quarter-by-quarter trade volume did not decline in Q3 this year. Furthermore, efforts towards building a greener global economy are expected to spur demand for environmentally sustainable products while reducing the need for goods with high carbon content and fossil fuels.
Economic growth forecasts for 2023 are being scaled downwards due to soaring energy prices, rising interest rates, sustained inflation across several areas and negative global economic spillovers from the war in Ukraine.
Persistently high energy prices and the continued rise in the cost of intermediate inputs and consumer goods are expected to reduce demand for imports, leading to a decline in the volume of international trade.
Global debt is at an all-time high and, accompanied by sustained interest rates, poses significant issues for debt sustainability. Continued restrictions of financial conditions are predicted to further increase pressure on highly indebted governments, highlighting vulnerabilities and negatively affecting international trade flows and investments.
Trade trends in Q3 2022
In the third quarter of 2022, the value of global trade in goods reached new heights across both developed and developing economic areas. South-South trade, excluding East Asian economies as mentioned above, grew by 19 per cent. The decline in trade in Q3 this year was similar to the same period last year. However, excluding the East Asian economies reveals a much more significant decline in the trade of developing countries.
In terms of year-over-year growth rates, all economic areas continued to increase except for the Russian Federation. Quarter-by-quarter, trade slowed down across every economy, barring East Asia, in which trade remained consistent between Q2 and Q3, and the Russian Federation, which saw a quick return following the significant blow faced in Q2.