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WTO Cuts Trade Growth Forecast on Falling Demand and Lower Commodity Prices

The global economy has had a rough year: import demand is dipping in countries like China and Brazil, primary commodity prices are falling and exchange rates have been largely unstable.

Those factors combined led World Trade Organization (WTO) economists to revise their forecast for world trade growth lower to 2.8%, down from the previously forecast 3.3%.

What’s more, with the financial market volatility and uncertainty surrounding the shifts in the U.S. monetary policy, the outlook for the remainder of the year and into 2016 is cloudy. The WTO reduced its trade growth estimate for 2016 from 4 percent to 3.9%, lower than the 5 percent average over the last 20 years.

If those projections hold true, 2015 will be the fourth straight year where annual trade growth fell below 3 percent and where trade grew at rate similar to GDP, instead of twice as fast, which was the case in the 1990s and early 2000s, WTO noted.

“Trade can act as a catalyst for economic growth,” Director-General Roberto Azevêdo said in a statement. “At a time of great uncertainty, increased trade could help reinvigorate the global economy and lift prospects for development and poverty alleviation.”

WTO said global output is still expanding moderately but unexpected occurrences in the world economy—like sharper than expected slowdowns in emerging economies like China and Brazil, the possibility of a U.S. interest rate rise and unanticipated costs connected to the migration crisis in Europe—have weighed on that output growth.

Trade growth is still uneven across regions, with export growth in emerging economies flat for the first half of the year, and in developing countries exports were down 1.9%. Europe saw the fastest year-on-year growth of all the regions in the second quarter at 2.7%, followed by North America with 2.1% and Asia, 0.6%.

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China received the sharpest downward revision as its slowing economy has led to declining trade in the region. WTO revised the previous 5 percent export forecast down to 3.1%. On the import side, the downward revision was even steeper, moving from April’s 5.1% forecast to 2.6%, due in part to a 2.2% decline in Chinese imports for the second quarter.

“The product composition of China’s merchandise imports suggests that some of the slowdown may be related to the country’s ongoing transition from investment to consumption led growth,” WTO said this week.

Brazil’s financial crisis and falling export prices forced a sizeable reduction to import forecasts for South and Central America too. WTO lowered its projection from a 0.5% decline to a 5.6% decline. Brazil’s imports were down 13 percent in Q2 over the prior year period, but economic conditions are expected to improve in 2016 and imports should start to recover both in Brazil and the region.

“If the slowdown in emerging markets worsens the revised forecasts could still prove to be overly optimistic,” WTO noted. “In particular, a slower rebound from recent declines in developing economies’ imports could shave half a percentage point off of global trade growth in 2015.”

WTO said it wants to “set trade growth on a more robust trajectory” and negotiate concrete outcomes before its December Ministerial Conference in Nairobi, Kenya.