Report predicts deceleration of global trade

Industry News | | MIC Customs Solutions |

Global trade growth is going down, new figures have suggested.

A new report has predicted that global trade growth will continue to decelerate in the final quarter of 2018, mostly due to a decline in export orders.

The World Trade Organization's (WTO) World Trade Outlook Indicator report said it has made further moderations to its initial projections due to the production and sales of cars, electrical components and agricultural raw materials being below trend.

It comes just two months after the body warned that trade conflicts are affecting business confidence and investment decisions and cut its outlook for global commerce through 2019.

In September, the WTO said it expected world merchandise trade growth to slow to 3.9 per cent this year and 3.7 per cent next year, compared to 4.7 per cent in 2017.

Head of thematic research at Standard Chartered Madhur Jha said in an article for FX Street that this is the first time trade tensions between the US and China are beginning to affect global trade flows as opposed to just sentiment.

Indeed, the Organization for Economic Cooperation and Development (OECD) recently warned that any escalation in this trade war will take a toll on growth by 2021, something that could force the Federal Reserve to increase money tightening.

Chief economist Laurence Boone warned: "We're not talking about a plateau [of growth] any more, but a slowdown."

The OECD said it expects global growth to fall from 3.7 per cent this year to 3.5 per cent in 2019 and 2020. Although it suggested the tariffs already imposed will do limited damage, it said any further tariffs on China could have costs that are "considerably higher and broader".

Were these to go ahead, global GDP could be 0.8 per cent below baseline by 2021, while global trade would decline by two per cent and business investment across the OECD by 2.75 per cent.

An editorial by the Financial Times said it would be "foolhardy" to assume that growth and trade would remain immune from the trade wars for long and called President Trump "the biggest threat to the benign if fragile situation since the global crisis".

It said the situation gives businesses the impression that the US is no longer the anchor of the world trading system, which harms confidence.

The paper urged the EU and China not to get involved in "tit-for-tat tariff increases".

"And if the global economy slows, whether as a result of a trade war or because the long expansion has run out of steam, both monetary and fiscal policymakers should stand ready to offset the weakness with more stimulus," the editorial concluded.

In a response in the same newspaper, Desmond Lachman from the American Enterprise Institute said the forthcoming G20 summit in Argentina needs to focus on "seeking a way to promote better macroeconomic policy co-ordination with a view to reducing global external imbalances".

He added that if this is not the case, then the world should brace itself for further trade protectionism that could "derail the global economic recovery".

Given the new WTO figures, perhaps the recovery has already come up against a significant bump in the road.