World trade 2012
The World Trade Report for 2012 released by the WTO on 12 April, forecasts a slowdown in world trade growth to 3.7% in 2012 which is down from 5.0% in 2011, after the 2010 rebound of 13.8%. The report attributes it to a number of shocks including the European sovereign debt crisis. According to the WTO, although more than three years have passed since the trade collapse of 2008-2009, the world economy and trade remain fragile and “further slowing of trade expected in 2012 shows that the downside risks remain high.”
A cause for worry, particularly for developing countries, is the view of the WTO that the sluggish pace of recovery might cause a “steady trickle of restrictive trade measures which could gradually undermine the benefits of trade openness,” and alerts WTO members to ensure that such a scenario does not materialise.
The present trade forecast assumes a global output growth of 2.1% at market exchange rates. But there are many factors which could have greater negative consequences if they come to pass which include steeper than expected downturn in Europe, financial contagion related to the sovereign debt crisis, rapidly rising oil prices and geopolitical risks.In 2011, the report states that world merchandise trade volumes grew by 5.0%. India had the fastest export growth among major traders in 2011, with exports rising by 16.1%. China was the second fastest export growth at 9.2%. In fastest growing imports, China led at 9.7% while India was second at 6.6%. Most developing countries’ exports grew at a slower pace than exports from developed countries.
There were many reasons for this slowdown. The interruption of oil supplies from Libya, severe flooding in Thailand in the last quarter, the Japanese earthquake and the tsunami which disrupted global supply chains were among the major causes for the decline in exports from the developing countries.
Recent statistics indicate that the European Union is in recession and China’s dynamic economy also appears to be heading for slower growth in 2012. Although US and Japan are beginning to show a pick up in their economies, this growth would be insufficient to compensate for the negative outlook in other markets.
Analysing the prospects for 2012 and 2013, WTO economists note that the euro sovereign debt crisis has threatened to undermine global growth. Although the agreement on debt restructuring plan for Greece has helped, WTO expects at least a mild recession in the European Union which will have negative consequences for global trade and output.
Even a mild recession in the EU will have a major impact on emerging and other developing countries as the EU provides the single largest market major market for their exports and even a mild recession will result in a reduction in import demand in the EU. Therefore the WTO forecasts a slowdown in merchandise trade volume growth to 3.7% in 2012 with 2.0% export growth for developed economies and 5.6% for developing economies. For imports, a growth of 1.9% is projected for developed economies and 6.2% for developing countries. 2013 is expected to see some improvements in world trade with a growth rate of 5.6% with both imports and exports growing moderately. However WTO cautions that the current forecasts for 2013 depend on a number of risk factors such as the possibility of recession in the Eurozone not worsening and rising commodity prices although such rises have mixed effects, bringing about positive effects for producers of such commodities and adverse effects for importers of such commodities. Geopolitical factors and natural disasters which are unpredictable can change all projections.
Although the WTO projections for 2012 do not paint a picture of total gloom and doom, policymakers in developing countries need to note the risks involved in particular, on depending on the EU as the single largest export market.