Caribbean Trade Law and Development

Tag: Forecast

  • WTO: Trade tensions pose greatest risk to trade growth

    WTO: Trade tensions pose greatest risk to trade growth

    Alicia Nicholls

    Rising trade tensions and economic uncertainty account largely for the deceleration in global trade growth experienced in 2018 and will continue to pose the greatest risk to growth in 2019. This is according to the World Trade Organization (WTO) in its latest Trade Statistics and Outlook released on April 2, 2019.

    As I had noted in my first blog post for the year, 2018 was without doubt a challenging  year for global trade policy. Among the highlights (or low lights) were the tariff tit for tat between the US and China until a truce in December 2018 brought a halt to the planned imposition of more tariffs, and the imposition by the US of punitive tariffs on steel and aluminium imports, which led to retaliation by other major powers, most notably, the EU.

    It is little surprise then that according to WTO economists, global trade under-performed in 2018 expanding by 3.0%, down from the 4.6% above-average growth recorded in 2017 and slower than the 3.9% which was projected for 2018 in their September 2018 forecast. The uncertainty has led to a dampening of investment and consumption. Weak import demand in Europe and Asia depressed global trade volume growth in 2018. Higher energy prices were partly responsible for the 10% increase in the value of merchandise trade in 2018.

    In his brief remarks during a press conference on the latest forecast, the WTO’s Director General, Mr. Roberto Azevedo, noted that “the fact that we don’t have great news today should surprise no one who has been reading the papers over the last 12 months. Of course there are other elements at play, but rising trade tensions are the major factor”.  The Director General further explained that the range of new and retaliatory measures tariffs introduced affected widely trade goods. Other factors which affected global trade growth in 2018 were the weaker global economic growth, volatility in financial markets and tighter monetary conditions in developed countries, among others.

    World commercial services trade was much more positive with the value rising 8% in 2018 on the back of strong import growth in Asia.

    Looking forward, WTO economists now forecast world merchandise trade growth to slow further to 2.6% in 2019, which is a downward revision from their forecast of 3.7% in September 2018. WTO economists estimate some pickup in trade growth to 3.0% in 2020, with stronger growth predicted for developing economies than developed ones.

    They, however, caution that this forecast could be affected negatively if trade tensions continue to escalate, or positively if they ease. Director General Azevedo reiterated that “it is therefore increasingly urgent that we resolve tensions and focus on charting a positive path forward for global trade which responds to the real challenges in today’s economy”.

    The full forecast may be viewed here, while Mr. Azevedo’s remarks are available here.

    Alicia Nicholls, B.Sc., M.Sc., LL.B., is an international trade and development consultant with a keen interest in sustainable development, international law and trade. You can also read more of her commentaries and follow her on Twitter @LicyLaw.

  • OECD Trims Growth Forecast and Warns of Trade Deceleration in Latest Economic Outlook

    Alicia Nicholls

    The Organisation for Economic Cooperation and Development (OECD) has again trimmed its global growth forecast slightly downward in its second economic outlook for the year, reflecting the weakness in Emerging Market Economies (EMEs). The Paris-based grouping predicts global GDP will expand by just 2.9% in 2015, down from 3% forecasted in its Interim Outlook this September. Eight years into the crisis this is the weakest growth since 2009. In its report, the OECD noted that the outlook for EMEs is “a key source of uncertainty at present given their large contribution to global trade and GDP growth”.

    While the OECD predicts that global trade and output will recover in 2016/2017 assisted by stimulus measures in China, in his address at the launch of the report, OECD Secretary General, Jose Angel Gurria, emphasised that this improvement is dependent on a variety of factors, including “supportive macroeconomic policies, investment, continued low commodity prices for advanced economies and a steady improvement in the labour market”.

    In anticipation of the COP21 UN Climate Change Conference in Paris, the OECD’s Economic Outlook report includes a chapter on climate change which calls for urgent action to address this global issue. In his address Secretary General Gurria stressed “we are on a collision course with nature and we have to change course” and urged that  “the fragility of economic recovery cannot be an excuse for policy inaction”.

    Key points from the Report 

    • Global output is expected to grow by 2.9 percent in 2015 (weaker than the 3 percent predicted in the September Interim Outlook), with a modest upturn to 3.3 percent in 2016 (slower than the 3.6 percent forecasted in the September Interim Outlook), provided there is smoothening of the slowdown in China and stronger investment in advanced economies.
    • In contrast to 2011 and 2012 where EMEs were propelling global growth, lacklustre EME growth, including recessions in Brazil and Russia and a slowdown in China have negatively impacted global output and trade growth in 2015.
    • Global trade growth has slowed and is precariously close to levels usually associated with a global recession. Noting the link between trade and economic growth, the OECD pointed out that softening Chinese demand for imports is responsible in part not just for the deceleration of global trade but has negatively affected growth in economies which are linked to the Chinese economy. In its report, the OECD noted that “a more significant slowdown in Chinese domestic demand could hit financial market confidence and the growth prospects of many economies, including the advanced economies”.
    • Growth in the Chinese economy is projected to slow to 6.8 percent in 2015 (up slightly from 6.7 percent in the September forecast), 6.5 percent in 2016 and 6.2 percent in 2017 as the Chinese economy rebalances towards consumption and services activity.
    • Advanced economies remain resilient so far. The growth forecast for the United States economy is 2.4 percent in 2015, 2.5 percent in 2016 and 2.4 percent in 2017. Despite steady recovery in output and in employment, workers pay is still subdued. The OECD has expressed its belief that the time is ripe for the Federal Reserve to raise interest rates. This would be the first interest hike by the US central bank since the recession began.
    • Although recovery in the Eurozone is expected to strengthen, growth projections were downgraded from the September Interim Outlook. Eurozone countries are now expected to grow by 1.8 percent in 2016 and 1.9 percent in 2017 thanks to lower oil prices, accommodative monetary policy and an easing of budget tightening.
    • The refugee surge to the EU is expected to promote labour force growth and help offset the effect of an ageing population but this will depend on several factors, including the skill set of the refugees and current labour market conditions.
    • Unemployment in OECD countries is expected to fall but there will still be 39 million people out of work in OECD countries, six million more before the crisis started.
    • Trade and investment protectionism, inequality and productivity are problems which must be countered in order for growth to be achieved. There is also need for accelerating structural reforms.
    • A well-designed climate change policies can bring an improvement in short term outlook.
    • The OECD will release a policy note looking at the labour market and fiscal impact of the European refugee surge in advance of the G20 summit in Antalya.

    The full report and presentations on the OECD Economic Outlook may be found here.

    Alicia Nicholls, B.Sc., M.Sc., LL.B. is a trade and development consultant with a keen interest in sustainable development, international law and trade. You can read more of her commentaries and follow her on Twitter @LicyLaw.