Economics

WTO forecasts rebound in global trade but keeps geopolitical risks in focus

Published

7 months ago

April 11, 2024

Container ships from international trunk lines, including those from Europe, Africa, India, Pakistan, and Southeast Asia, are loading and unloading containers at the container terminal of the Qianwan Port Area of Qingdao Port in Qingdao, China, on April 4, 2024.

Nurphoto | Getty Images

The World Trade Organization on Wednesday said that it expects global trade to rebound gradually this year, before rising further in 2025, as the impacts of higher inflation fall into the rearview mirror.

In its latest “Global Trade Outlook and Statistics” report, the WTO forecast that total global trade volumes will increase by 2.6% in 2024, and by a further 3.3% in 2025. It follows a larger-than-expected 1.2% decline in 2023, as inflationary pressures and higher interest rates weighed on international trade.

“The reason for this pickup is basically the normalization of inflation and also the normalization of monetary policy, which has been a drag on trade in 2023,” the WTO’s chief economist Ralph Ossa told CNBC’s Silvia Amaro.

The trade rebound is expected to be “broad-based,” including across Europe, which experienced some of the deepest falls in trade volumes last year as a result of geopolitical tensions and the energy crisis caused by Russia’s full-scale invasion of Ukraine.

“Europe was really weighing on international trade in 2023, and we don’t see that being the case anymore,” Ossa said.

Geopolitical risks remain

Overall, world trade has been “remarkably resilient” over recent years, rising above its pre-Covid-19 pandemic peak in late 2023, the WTO report concluded. However, the organization warned that geopolitical tensions could still pose a risk to its outlook.

In particular, the ongoing war between Israel and Palestinian militant group Hamas could cause major trade disruptions, should it spill over into energy markets, Ossa said.

The economist also pointed to signs of global trade “fragmentation” along geopolitical lines.

The WTO report divided the global economy into two “hypothetical geopolitical blocks” based on U.N. voting patterns and found that trade growth between the blocks was slower than within them. The U.S. and U.K. for instance, have typically taken similar positions in recent U.N. votes on the Russia-Ukraine conflict, while China and South Africa, on the other hand, have taken opposite views.

That fragmentation was especially notable between the world’s two largest economies, the U.S. and China.

“We’ve seen that trade growth between the United States and China was 30% slower than trade growth between these countries and other countries,” Ossa said, referring to the period since 2018, when trade tensions initially arose.

“That doesn’t mean that they are not still trading a lot, but their trade shares are increasingly moving away from these relationships.”

Trade tensions between the U.S. and China resurfaced this week, when U.S. Treasury Secretary Janet Yellen said she would not rule out possible tariffs on Beijing, if it is found to be engaging in unfair trade practices. The calls for a tougher stance on China were echoed on Tuesday by European Commission chief Ursula von der Leyen.

The spat centers on claims that China is “dumping” subsidized green technology goods into international markets, effectively undercutting domestic producers. Beijing denies the claims.

The WTO report does not detail China-specific trade forecasts, however it expects a 3.4% aggregate increase in Asia exports in both 2024 and 2025.

“That doesn’t mean that, in particular sectors, we couldn’t see or we don’t expect to see any surges,” Ossa said.

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Bank of England in the City of London on 6th November 2024 in London, United Kingdom. The City of London is a city, ceremonial county and local government district that contains the primary central business district CBD of London. The City of London is widely referred to simply as the City is also colloquially known as the Square Mile. (photo by Mike Kemp/In Pictures via Getty Images)

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The U.K. economy expanded by 0.1% in the third quarter of the year, the Office for National Statistics said Friday.

That was below the expectations of economists polled by Reuters who forecast 0.2% gross domestic product growth on the previous three months of the year.

It comes after inflation in the U.K. fell sharply to 1.7% in September, dipping below the Bank of England’s 2% target for the first time since April 2021. The fall in inflation helped pave the way for the central bank to cut rates by 25 basis points on Nov. 7, bringing its key rate to 4.75%.

The Bank of England said last week it expects the Labour Government’s tax-raising budget to boost GDP by 0.75 percentage points in a year’s time. Policymakers also noted that the government’s fiscal plan had led to an increase in their inflation forecasts.

The outcome of the recent U.S. election has fostered much uncertainty about the global economic impact of another term from President-elect Donald Trump. While Trump’s proposed tariffs are expected to be widely inflationary and hit the European economy hard, some analysts have said such measures could provide opportunities for the British economy.

Bank of England Governor Andrew Bailey gave little away last week on the bank’s views of Trump’s tariff agenda, but he did reference risks around global fragmentation.

“Let’s wait and see where things get to. I’m not going to prejudge what might happen, what might not happen,” he told reporters during a press briefing.

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