WTO forecasts trade downturn in 2023 - what are the key drivers?

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A new WTO report forecasts a 1.7 percent increase in global trade volumes this year, down from 2.7 percent in 2022.

A new forecast from the World Trade Organization (WTO) has warned that global activity is set to experience a slowdown this year. While overall trade volumes are expected to rise compared with last year, the pace is expected to drop off in 2023, with macroeconomic factors including high inflation, greater financial uncertainty and the ongoing war in Ukraine all contributing to lower demand for goods.

So what are the key takeaways for importers and exporters around the world from this report, and what factors can businesses expect to see impacting demand for the rest of 2023 and into 2024?
What were the main trade highlights of 2022? 

The report, titled Global Trade Outlook and Statistics, estimated that overall, global trade goods volumes are set to grow by 1.7 percent for the year as a whole. This compares with a figure of 2.7 percent for 2022.

Full-year performance last year was also lower than expected, which the WTO put down to a sharp decline in the fourth quarter. There were several factors contributing to this, including a significant rise in global commodity prices, mostly as a direct result of the war in Ukraine. 

However, a separate WTO study found that many of the economies most vulnerable to these shocks were able to find substitute products and suppliers to obtain essential goods, thereby minimizing the damage. The WTO said: "This response might not have been possible without an open and inclusive multilateral trading system to anchor the global economy."

In total, the value of world merchandise trade rose by 12 percent to US$25.3 trillion in 2022. This was in part due to inflated food and energy prices.

The report noted that in Europe, countries that were previously reliant on Russian energy imports have turned to suppliers including the US, Qatar and Algeria for liquified natural gas, which has resulted in prices for the commodity increasing elsewhere, such as in Japan.

A similar story was seen in food. For instance, Ethiopia’s imports of wheat from Russia
and Ukraine fell 75 by percent and 99.9 percent respectively, but this was compensated for by increased shipments from the US and Argentina. Overall, food prices were up by 18 percent in 2022, while fertilizer saw an even higher jump of 63 percent year-on-year.

The key factors impacting trade volumes in 2023

For 2023, many of the same risks that were present in the last 12 months continue to have an impact on trade. However, growing unease on global financial markets is also posing a threat.

WTO chief economist Ralph Ossa said: "The lingering effects of COVID-19 and the rising geopolitical tensions were the main factors impacting trade and output in 2022 and this is likely to be the case in 2023 as well. Interest rate hikes in advanced economies have also revealed weaknesses in banking systems that could lead to wider financial instability if left unchecked."

He therefore warned that governments and regulators must be alert to the potential impact of financial risk in the coming months.

Despite these issues, the headline figure for trade growth is an improvement on previous estimates of a one percent increase. One key factor behind this is the relaxation of strict COVID-19 controls in China. This is expected to open up pent-up consumer demand in the country, which will in turn boost international trade.
Looking further ahead

For next year, the WTO report forecasts global trade growth to rebound somewhat, with growth expected to reach 3.2 percent. However, the organization noted that this prediction is far more uncertain than usual. Increasing geopolitical tensions, global food insecurity, the unforeseen fallouts from monetary tightening and increasing levels of debt are all potential downside issues that could impact trade in 2024 and beyond.

Commenting on the report, WTO director-general Ngozi Okonjo-Iwaela said: "Trade continues to be a force for resilience in the global economy, but it will remain under pressure from external factors in 2023. This makes it even more important for governments to avoid trade fragmentation and refrain from introducing obstacles to trade."

She called on all members of the body to prioritize multilateral cooperation on trade this year in order to help boost both economic growth and worldwide living standards for the long term.