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Trade: World trade growth to slow further in '08: WTO

	April 21, 2008

In its first forecast for this year, World Trade Organisation (WTO) has stated that world trade will slow to 4.5 per cent in 2008 from 5.5 per cent in 2007 and 8.5 per cent in 2006.

At the same time, financial market turbulence and economic slowdown in some developed countries has not so far disrupted trade, the WTO said. WTO economists said the forecast was based on expectations of growth in world output of 2.6 per cent in 2007, comprising economic growth in major developed Markets of 1.1 per cent and growth in developing countries of above 5 per cent.



Global trade is expected to decelerate to about 4.5 per cent this year, against 5.5 per cent in 2007, because of the heightened recessionary prospects in the United States coupled with weaker demand growth in both Europe and Japan.



Releasing its grim forecast for the current year, WTO economists warned about several downside risks as well as rising inflationary pressures because of the increase in commodity prices and lax monetary conditions.



But the trade projections were unusually difficult to gauge in 2008 because of financial market turbulence which has reduced economic growth prospects in the developed Markets.



"These are uncertain and troubling times for the global Economy," WTO Director-General Pascal Lamy said in a statement. "To date, the financial market turmoil, significant price surges and the slow-down of developed economies have not led to a disruption of trade."



But Lamy said protectionist pressures were building and it was necessary to strengthen the global trading system with transparent, predictable and fair rules. A conclusion of the Doha liberalisation round was the best way to do this, he said.



The 2007 figure of 5.5 per cent trade growth is slightly lower than its 6 per cent forecast made a year ago, the WTO said, noting that the global Economy and world trade started to slow in 2007 as demand decelerated in developed regions.



Developing countries took a record 34 percent share of world merchandise trade (exports plus imports) in 2007.



This year developing countries and the Commonwealth of Independent States (CIS) comprising Russia and most former Soviet republics are expected to contribute more than one half of global import growth, it said.



Strong commodity prices and reduced reliance on developed Markets should help developing and CIS countries maintain high investment and consumption even if commodity prices soften in the second half of 2008, it said.



High cereal prices threatening developing food importing countries: But the picture among developing countries is diverse, with a doubling in prices of major cereals between mid-2007 and March 2008 threatening developing net food importers with a big rise in their import bill this year, a rise in poverty and political consequences posing grave challenges, the WTO said. Faced with increasing commodity prices, growing shortages for basic food articles, and recessionary economic condition, WTO Director General Pascal Lamy warned about the dangers of rising protectionist pressures.



The decline of the US dollar against the euro and other European currencies inflated the dollar value of trade in 2007. World merchandise exports rose 15 per cent to $13.6 trillion and services exports rose 18 per cent to $3.3 trillion. In real terms merchandise exports rose 5.5 per cent in 2007.



Germany remained the world's biggest exporter of merchandise goods in 2007 due to a 20 per cent rise in exports, the WTO said, noting that the real appreciation of the euro had differing consequences for export performance in eurozone economies.



China remained the world's second biggest trader, and its trade volumes outstripped the combined trade of Japan and South Korea. China, India and Vietnam each recorded nominal export and import growth above 20 per cent in 2007.



With US domestic demand possibly shrinking in the first half of this year, US imports are likely to fall further quarter-on-quarter in the first half, the WTO said.



But US exports are expected to grow, sustained by a strong real effective depreciation and excess US capacity, it said.



The highlight of the world trade forecast is China which is yet to face any roadblock in its rapid trade growth. China is going to take away the lion’s share in the economic and trade growth this year, while India would continue to have trade deficit with imports growing at a much rapid pace.



Last year, China’s exports increased by 26 per cent with a total value of $1,218 billion, while India’s exports grew by 20 per cent to reach a level of $145 billion. While China recorded 21 per cent growth in its imports last year, India’s imports surged by 24 per cent, leaving the Middle Kingdom with a massive trade surplus of over $200 billion.



Consequently, China ranks second in the global exports and third in imports, while India does not figure among the first 30 exporters but ranks 18th in the imports’ list.



Even in commercial services, which ought to have been the mainstay of India’s export performance, the WTO’s figures indicate vast disparities between the two Asian neighbours.



China, for example, is ranked seventh in global exports of commercial services while India is placed 11th. China ranks fifth in global imports of commercial services, while India has occupied the 13th position. India has a surplus of $8 billion in the overall trade in commercial services while China has a small deficit.



Rise in Indian services exports less than global average: Even as the Reserve Bank of India reckons that India’s services exports are roughly two times more than its services imports, the latest figures from the World Trade Organisation (WTO) shows that the gap between these two is too close to derive any big comfort, particularly when the trade deficit on the merchandise side has become mammoth.



In its preliminary assessment of global trade trends released in Geneva today, the WTO said that “India is estimated to have one of the strongest import expansion rates for commercial services in Asia, while its services exports rose less than the global average for the first time since 1996.”



WTO figures show that in 2007, India has occupied 11th slot among 30 leading exporters of commercial services at $86 billion, accounting for 2.7 per cent of share in global trade in such services. But among the 30 services importers, India occupies the 13th slot at $78 billion, accounting for 2.6 per cent in global trade in services imports.



The annual percentage change in services exports in 2007 was 15 per cent against the world average of 18 per cent growth, while in the case of services imports India’s annual percentage change in 2007 was 24 per cent.