Prospects for the global economy have darkened since the outbreak of war in Ukraine on Feb. 24, prompting World Trade Organization (WTO) economists to reassess their projections for world trade over the next two years.
The WTO now expects merchandise trade volume growth of 3 percent in 2022, down from its previous forecast of 4.7 percent, and 3.4 percent in 2023, but these estimates are less certain than usual due to the fluid nature of the conflict. The most immediate economic impact of the crisis has been a sharp rise in commodity prices, the WTO noted.
Despite their small shares in world trade and output, Russia and Ukraine are key suppliers of essential goods such as food, energy and fertilizers, supplies of which are now threatened by the war. Grain shipments through Black Sea ports have already been halted, with potentially dire consequences for food security in poor countries.
In addition, lockdowns in China to prevent the spread of Covid-19 are again disrupting seaborne trade at a time when supply chain pressures appeared to be easing. This could lead to renewed shortages of manufacturing inputs and higher inflation, the WTO said.
“The war in Ukraine has created immense human suffering, but it has also damaged the global economy at a critical juncture. Its impact will be felt around the world, particularly in low-income countries, where food accounts for a large fraction of household spending,” WTO director-general Ngozi Okonjo-Iweala said. “Smaller supplies and higher prices for food mean that the world’s poor could be forced to do without. This must not be allowed to happen. This is not the time to turn inward. In a crisis, more trade is needed to ensure stable, equitable access to necessities. Restricting trade will threaten the wellbeing of families and businesses and make more fraught the task of building a durable economic recovery from Covid‑19.”
She said governments and multilateral organizations must work together to facilitate trade at a time of sharp inflationary pressures on essential supplies and growing pressures on supply chains.
“History teaches us that dividing the world economy into rival blocs and turning our backs on the poorest countries leads neither to prosperity nor to peace,” Okonjo-Iweala said. “The WTO can play a pivotal role by providing a forum where countries can discuss their differences without resorting to force, and it deserves to be supported in that mission.”
With little hard data on the economic impact of the conflict, WTO economists have had to rely on simulations to generate reasonable assumptions about gross domestic product (GDP) growth in 2022 and 2023. Under that situation, world GDP at market exchange rates is expected to grow 2.8 percent in 2022, down 1.3 percentage points from the previous forecast of 4.1 percent. Growth should pick up to 3.2 percent in 2023, close to the average rate of 3 percent between 2010 and 2019.
Given current GDP assumptions, merchandise trade volume growth in 2022 could be as low as 0.5 percent or as high as 5.5 percent, the WTO noted. The forecast takes into account higher frequency data for selected economies, including monthly statistics on container throughput of U.S. and Chinese ports to capture port congestion in these countries.
The forecast foresees 2022 export volume growth of 3.4 percent in North America, 2.9 percent in Europe, 4.9 percent in the Commonwealth of Independent States (CIS), excluding Ukraine, 1.4 percent in Africa, 11 percent in the Middle East and 2 percent for Asia, with a decline of 0.3 percent in South America.
It also anticipates import growth of 3.9 percent in North America, 4.8 percent in South America, 3.7 percent in Europe, 11.7 percent in the Middle East, 2.5 percent in Africa and 2 percent in Asia, with a 12 percent decline in the CIS.