WTO raises 2024 trade forecast, but risks remain

The World Trade Organization (WTO) has slightly revised its forecast for global merchandise trade growth in 2024, predicting a 2.7% increase from the previous estimate of 2.6%. However, the organisation warns that downside risks remain, primarily due to regional conflicts, geopolitical tensions, and policy uncertainty.

The WTO’s October 2024 Global Trade Outlook and Statistics Update highlights a rebound in global trade after a slump in 2023 driven by high inflation and rising interest rates. The improved outlook is attributed to declining inflationary pressures and central banks cutting interest rates, which is expected to stimulate consumption and investment.

However, the revised forecast for 2025 is down slightly from the previous estimate of 3.3% and is now predicted to be 3%.

“Since the last report, inflation has fallen, as expected, in advanced economies, prompting central banks to begin lowering interest rates,” said Ralph Ossa, WTO chief economist. “We expected these developments to boost consumption and investment, thereby increasing demand for imports. In particular, we projected that Asian economies would lead the trade recovery, while North America, Europe and other regions would contribute more modestly, yet positively. Broadly speaking, these expectations have materialised.”

While the global figures show only modest revisions since the last report, the WTO said they do not capture some important changes regarding the regional composition of trade. Trade developments in US dollar terms show the greater variation and while growth in the value of world merchandise trade was flat in the first half of 2024 (+0.1%), growth in commercial services was stronger, up 8% year-on-year in Q1 (the latest period for which data is available).

“Two key differences stand out between the current forecast and the previous one,” said Ossa.

“First, trade growth in European economies has been weaker than expected, affecting both imports and exports.

Second, export growth in Asian economies has been stronger than expected.”

Risk concerns

Despite the positive forecast, the WTO emphasises that risks to the outlook are significant. An escalation of the conflict in the Middle East could disrupt shipping routes and raise energy prices, given the region’s importance in petroleum production. Additionally, diverging monetary policies across major economies could lead to financial volatility and hinder trade.

“An escalation of the conflict in the Middle East could have negative consequences for global and regional trade flows, particularly for any countries directly involved. The effects would also be felt in other regions, including through further disruptions to shipping and rising energy prices due to higher risk premiums,” said the report.

The WTO said it has observed “increasing signs of fragmentation” in trade flows since the onset of the war in Ukraine, with exports and imports reorienting along geopolitical lines.

“Estimates suggest that trade between hypothetical blocs composed of economies holding similar political views (based on voting patterns in the United Nations General Assembly, labelled as East and West) has grown 4% more slowly than trade within these blocs since the outbreak of war in Ukraine.”

Yet while trade is increasingly conducted among “like-minded economies”, Ossa said, there has not been a broader shift towards regionalisation or near-shoring on a global scale.

Regional variations

The WTO’s revised forecast also indicates that while global trade is expected to grow, there will be regional disparities. Asia is projected to lead other regions in terms of export and import growth, while Europe is expected to experience a decline in both exports and imports.

“Asia’s exports will grow faster than those of any other region this year, rising by as much as 7.4%,” said the report. It will be followed by the Middle East (4.7%), South America (4.6%), the CIS region (4.5%), Africa (2.5%), North America (2.1%) and Europe (-1.4%). On the import side, the fastest growing region will be the Middle East (9.0%) followed by South America (5.6%), Asia (4.3%), North America (3.3%), the CIS region (1.1%), Africa (1.0%) and Europe (-2.3%).

“All regions should see trade flows increase in 2025 in volume terms except for a small decline in South American exports (-0.1%) and a larger decline in Middle East imports (-1.1%).”

The stronger-than-expected export performance in Asia has been driven by increased exports of electronics, automotive products and other manufactured goods from China, with other Asian economies such as India, Vietnam and Singapore also reporting robust export growth, added Ossa. On the downside, Europe’s export decline has been led by a contraction in the automotive and chemicals sectors, both of which are concentrated in Germany.

Ossa expected regional trade contributions to stabilise in 2025, aligning more closely with medium-term trends.

While the WTO’s forecast is cautiously optimistic, the organisation stresses the need for continued vigilance and preparedness to address potential challenges that could derail the global trade recovery. The risks to the outlook, as laid out by the WTO, are substantial, and the global economy continues to face a complex and uncertain future.
Source: Baltic Exchange