Interest rate increases are already hitting the global economy hard. The World Trade Organization (WTO) has drastically lowered its forecast for world trade growth from 1.7% to 0.8%. That rate is well below the 3% recorded last year. The Geneva-based organization attributes this drop to several factors, but highlights that the increases in interest rates are being notably felt in the manufacturing sector of the United States and the European Union, while inflation remains embedded. in major economies and hopes of a strong recovery in China are fading due to tensions in real estate markets. For next year, the institution forecasts an increase in exchanges of 3.3%.
The WTO has been warning for months about the slowdown in global trade, but its calculations point to an increasingly strong deterioration. Although the main economies—with exceptions such as Germany—have been weathering the recession, global trade has suffered due to the sharp slowdown already in the first half of the year. And this setback has been very broad, affecting a large number of countries and goods, from manufacturing products to textiles. “The slowdown in trade predicted for 2023 is worrying as it has unfavorable effects on the standard of living of people around the world,” said WTO Director-General Ngozi Okonjo-Iweala.
Global trade already began to slow down at the end of last year. However, in the first half of the year, exports registered a rapid increase in North America (+5.4%), followed by South America (+1.4%), Africa (+0.9%) and Europe (+0 ,5%). On the other hand, they fell in Asia (-2.3%) and the Russia and Central Asia region (-3.5%). For this second semester, however, the WTO predicts that foreign sales will recover and those in Europe will fall into negative territory. In the same period, imports grew especially in Russia and Central Asia (33.7%) and the Middle East (12.2%). Instead, they retreated in Europe, Asia and North America. Once again, the WTO expects foreign purchases to remain weak in the Old Continent.
The WTO detects a host of factors that explain this decline. Among others, there is high inflation and the battle of central banks through rate increases, which are expected to remain at high levels for a long period of time. But there is more: the mediocre growth of China, the appreciation of the dollar or geopolitical issues such as the war in Ukraine or the tensions between Washington and Beijing. There is another ingredient: the growing trend towards the fragmentation of world trade into blocks. There, the WTO is cautious: according to the report published this Thursday, the organization does not see an underlying trend of “broad deglobalization,” but it does see “signs” of a withdrawal of blocks for geopolitical reasons.
“We see, indeed, some signs that show that trade fragmentation data is related to geopolitical tensions. Fortunately, we have not yet reached a high degree of deglobalization,” said WTO chief economist Ralph Ossa. According to the organization, goods are still produced through extensive global supply chains, but these may have already lost depth.
The value of merchandise trade also fell by 5% in the first half compared to the same period last year, weighed down mainly by chemical products, iron and steel, telecommunications equipment and textiles. The outlook for next year is better, but the WTO is cautious. “Positive growth in the volume of exports and imports should resume in 2024, but we must remain alert,” adds Ossa.
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