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WTO Sharply Slashes 2023 Trade Outlook

Global trade is expected to lose momentum in the second half of 2022 with merchandise trade volumes predicted to decline in 2023, according to a new report from World Trade Organization (WTO) economists.

Anticipating multiple shocks to weigh on the economy—including high energy prices in Europe due to the Russia-Ukraine war, tightening monetary policy in the United States and Covid outbreaks in China—the WTO dropped its global trade volume growth estimate to 1.0 percent from its previous prediction of 3.4 percent.

“Policymakers are confronted with unenviable choices as they try to find an optimal balance among tackling inflation, maintaining full employment, and advancing important policy goals such as transitioning to clean energy,” said Ngozi Okonjo-Iweala, director-general, WTO.

“Trade is a vital tool for enhancing the global supply of goods and services, as well as for lowering the cost of getting to net-zero carbon emissions,” she added.

The new WTO forecast estimates world GDP at market exchange rates will grow by 2.8 percent in 2022 and 2.3 percent in 2023—the latter is 1.0 percentage point lower than what was previously projected.

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In the WTO’s April forecast, which was released just weeks after the start of the war in Ukraine, economists had to rely on simulations to draw reasonable growth assumptions without hard data about the war’s impact. As the war has progressed, the WTO’s GDP projections for 2022 ended up being broadly correct. But estimates for 2023 now appear overly optimistic, as energy prices have skyrocketed, inflation has become more widespread, and the war shows no sign ending.

The WTO said that if the current forecast plays out, trade growth will slow sharply, but still remain positive in the coming year. However, the level of uncertainty of the forecast remains high due to shifting monetary policies in advanced economies and the unpredictability of the conflict in Ukraine.

If current assumptions hold, trade growth in 2022 could end up between 2.0 and 4.9 percent, but should additional negative impacts materialize, trade growth in 2023 could be as low as -2.8 percent. But if conditions improve, trade growth next year could be high as 4.6 percent.

Energy prices could be one of the significant factors impacting trade growth in the coming year, and the war in Ukraine continues to have an effect on fuel prices. In August, energy prices were up 78 percent year-on-year, led by natural gas, which was up 250 percent. The 36 percent increase in the price of crude oil over the same period was small by comparison but still significant for consumers.

With Ukraine and Russia being a major sources of natural gas, prices for the fuel have diverged strongly across regions, with European prices up 350 percent year-over-year in August. In the U.S., prices increased 120 percent in the same month but remained well below European levels.

European demand for liquified natural gas (LNG) to supplement reduced supplies from the Russian Federation has also pushed up energy costs in Asia, where the price of LNG was up 87 percent in August. European gas prices have moderated recently, falling 34 percent between Aug. 31 and Sept. 23, but they remain high by historical standards.

Looking at merchandise trade by region, the Middle East is expected to record the strongest export growth of any WTO region this year at 14.6 percent. Africa follows at 6.0 percent, North America at 3.4 percent, Asia at 2.9 percent, Europe at 1.8 percent and South America at 1.6 percent. In contrast, Commonwealth of Independent States (CIS) exports are expected to decline by 5.8 percent for the year. The Middle East also had the fastest trade volume growth on the import side at 11.1 percent, followed by North America (8.5%), Africa (7.2 percent), South America (5.9 percent), Europe (5.4 percent), Asia (0.9 percent) and CIS (-24.7 percent).