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WTO Indicator: Trade Growth Seen Softening on Trade Tensions

The World Trade Organization’s latest World Trade Outlook Indicator shows the current strong rate of trade expansion is likely to continue, though it will slow slightly in the second quarter of 2018.

The World Trade Outlook Indicator’s (WTOI) current value of 101.8 remains above the baseline value of 100, but below the previous value of 102.3. The WTOI report said this suggests continued solid trade growth in the April to June period, but likely at a somewhat slower pace than in the first quarter.

The recent dip in the WTOI notably reflects declines in component indices for export orders, but also for air freight, which may be linked to rising economic uncertainty due to increased trade tensions, the report said. While the air freight index remains above trend at 102.5, it has lost momentum in recent months, the report noted.

Container port throughput also remains above trend at 105.8, but it shows signs of plateauing, while automobile sales (97.9) and agricultural raw materials (95.9) are currently weighing down the WTOI. In contrast to the mixed results elsewhere, the index for electronic components trade (104.2) has turned up, climbing above trend.

The latest results are broadly in line with the WTO’s most recent trade forecast issued last month that predicted a moderation of merchandise trade volume growth ot 4.4% this year from 4.7% in 2017. Risks to the trade forecast posed by rising trade tensions remain present, the WTOI report stated.

This came as the U.S. and China seemingly remain at odds over threats and counterthreats over tariffs and trade imbalances. The U.S. retail, apparel and footwear industries have implored the Trump administration not to impose tariffs due to the higher prices on consumer goods they said it would bring and how it would disrupt the global circular supply chain.

Perhaps reflecting the concern over potential trade conflict, the forward-looking export orders index dropped sharply, falling from an above-trend plateau to a below-trend value of 98.1 in the latest month. Designed to provide “real time” information on the trajectory of world trade relative to recent trends, the WTOI is not intended as a short-term forecast, although it does provide an indication of trade growth in the near future. Readings of 100 indicate growth in line with medium-term trends and readings greater than 100 suggest above-trend growth, while those below 100 indicate the reverse.