WTO Cuts Global Trade Forecast

The World Trade Organization (WTO) today lowered its projection for global trade growth in 2013 as the economic slowdown in Europe continues to drive down demand. However, U.S. trade performance is expected to be relatively strong this year.

Global trade growth has decelerated dramatically in recent years and is expected to remain sluggish through 2013 as slow growth in developed economies, particularly those in the European Union, continues to drag down export demand across the world. Although the U.S. has managed to boost its export rate despite the E.U. fiscal crisis, lingering effects from the worldwide economic recession may cause concern among American businesses.

According to the WTO's latest global trade forecast, world trade is expected to grow by 3.3 percent in 2013, significantly less than the 4.5 percent growth estimated in September. Although the 2013 projection is an improvement from the anemic 2 percent growth rate for 2012, it is still down from 5.2 percent in 2011 and remains well below the 20-year average of 5.3 percent annual growth.

The WTO's figures are based on the total volume of merchandise and commercial services exported across borders around the world, and includes adjustments for changing prices and exchange rates.

In dollar terms, the value of exported merchandise inched up only 0.2 percent last year to a total of $18.3 trillion, largely due to falling prices for traded goods, led by coffee (-22 percent), cotton (-42 percent), iron ore (-23 percent) and coal (-21 percent). Meanwhile, services exports rose by 2 percent to $4.3 trillion.

"The events of 2012 should serve as a reminder that the structural flaws in economies that were revealed by the economic crisis have not been fully addressed, despite important progress in some areas. Repairing these fissures needs to be the priority for 2013," WTO Director General Pascal Lamy noted. "Attempts by developed economies to strike a balance between short-term growth and increasingly binding fiscal constraints have produced uneven results to date, and finding an appropriate mix of policies has proven to be challenging. Similarly, the amount of progress that developing economies have made in reducing their reliance on external demand is still unclear."

In 2012, merchandise trade volume in the E.U. shrank by 0.3 percent, as sluggish output, an unemployment rate approaching 12 percent, and mounting difficulty from the sovereign debt crisis hurt trade conditions. In the U.S., however, growth reached 2.3 percent, nearly double the 1.2 percent rate for developed economies as a whole. Last year, the U.S. was the world's second largest exporter (after China), with exports growing 5 percent and reaching 8.4 percent of global share.

Despite healthy prospects for 2013, the WTO cautioned that "[a]ccelerated fiscal consolidation in the U.S. could also undermine the forecast if brinksmanship over budget negotiations between the executive and legislative branches leads to miscalculation. As always, unexpected events such as geopolitical tensions and natural disasters could also intrude to disrupt trade."

As in previous years, trade growth in emerging economies greatly outpaced growth in developed nations, with exports in the developed world increasing 1 percent in 2012, while exports from developing markets climbed 3.3 percent. Moreover, developing economies saw a 4.2 percent surge in overall merchandise trade volume last year, compared to just 1.2 percent among developed economies.

Although trade projections for 2013 remain muted, the outlook for 2014 is considerably brighter, with the WTO forecasting a 5 percent gain in global trade next year.

Amid the challenges of a still-struggling global economy, the WTO warned against adopting measures to artificially boost domestic growth by restricting international free trade.

"As long as global economic weakness persists, protectionist pressure will build and could eventually become overwhelming. The threat of protectionism may be greater now than at any time since the start of the crisis, since other polices to restore growth have been tried and found wanting," Lamy explained. "To prevent a self-destructive lapse into economic nationalism, countries need to refocus their attention on reinforcing the multilateral trading system. Trade can once again be an engine of growth and a source of strength for the global economy rather than a barometer of instability. The way is before us, we only need to find the will."


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