11:42 p.m.
Thursday, 27 July 2017

World economy and trade remain fragile: WTO

Los Angeles, California.' “More than three years have passed since the trade collapse of 2008-09, but the world economy and trade remain fragile. The further slowing of trade expected in 2012 shows that the downside risks remain high. We are not yet out of the woods,” WTO Director General Pascal Lamy said in Switzerland.

“The WTO has so far deterred economic nationalism, but the sluggish pace of recovery raises concerns that a steady trickle of restrictive trade measures could gradually undermine the benefits of trade openness. It is time to do no harm. WTO members should turn their attention to revitalizing the trading system and to ensuring such a scenario does not materialize.”

WTO economists cautioned that preliminary trade figures for 2011 and forecasts for 2012 were difficult to gauge due to the extraordinary levels of volatility in financial markets and in the broader economy for the last few years.

The preliminary figure of 5.0% for world merchandise trade growth in 2011 is down 0.8 points from their most recent forecast update in September 2011. These figures are in “real” terms, ie, adjusted to account for inflation and exchange rate fluctuations.

The present trade forecast assumes global output growth of 2.1% in 2012 at market exchange rates, down from 2.4% in 2011, based on a consensus of economic forecasters. However, there are severe downside risks for growth that could have even greater negative consequences for trade if they came to pass. These include a steeper than expected downturn in Europe, financial contagion related to the sovereign debt crisis, rapidly rising oil prices, and geopolitical risks.

Recent production data suggest that the European Union may already be in recession, and even China’s dynamic economy appears to be growing more slowly in 2012. Economic prospects have improved in the United States and Japan as labour market conditions improve in the former and business orders pick up in the latter, but these positives will only partly make up for the earlier negatives.

Developed economies exceeded expectations with export growth of 4.7% in 2011 while developing economies (for the purposes of the analysis this includes the Commonwealth of Independent States, or CIS) did worse than expected, recording an increase of just 5.4%. In fact, shipments from developing economies other than China grew at slightly slower pace than exports from the developed economies that included disaster-struck Japan. The relatively strong performance of developed economies was driven by a robust 7.2% increase in exports from the United States, as well as a 5.0% expansion in exports from the European Union. Meanwhile, Japan’s 0.5% drop in exports detracted from the average for developed economies overall.

Several adverse developments disproportionately affected developing economies, including the interruption of oil supplies from Libya that caused African exports to tumble 8% last year, and the severe flooding that hit Thailand in the fourth quarter. The Japanese earthquake and tsunami also disrupted global supply chains, which penalized exports from developing countries like China, as reduced shipments of components hindered production of goods for export.

Significant exchange rate fluctuations occurred during the year, which shifted the competitive positions of some major traders and prompted policy responses (e.g. Switzerland, Brazil). Fluctuations were driven in large part by attitudes toward risk related to the euro sovereign debt crisis. The value of the US dollar fell 4.6% in nominal terms against a broad basket of currencies according to data from the Federal Reserve, and 4.9% in real terms according to data from the International Monetary Fund, making US goods generally less expensive in export. Nominal US dollar depreciation also would have inflated the dollar values of some international transactions.


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