If current trade tensions remain unresolved, policy makers should be prepared for a sharp slowdown in global commerce, as indicated by the decline of several trade-related indicators in the latest World Trade Organization’s World Trade Outlook Indicator (WTOI) released Tuesday.
The most recent WTOI reading of 96.3 is the weakest since March 2010 and below the baseline value of 100 for the index. These indicators signal trade weakness is likely to extend into the first quarter of 2019. Readings of 100 indicate growth in line with medium-term trends, readings greater than 100 suggest above-trend growth and those below 100 indicate below trend growth.
The weakness in the overall index was led by significant drop-offs in the component indices that appear to be under pressure from heightened trade tensions. Indices for export orders (95.3), international air freight (96.8), automobile production and sales (92.5), electronic components (88.7) and agricultural raw materials (94.3) have shown the strongest deviations from trend, approaching or surpassing previous lows since the 2008 to 2011 global financial crisis often referred to as the Great Recession. Only the index for container port throughput remained relatively strong at 100.3, showing on-trend growth, the WTOI report noted.
Designed to provide “real time” information on the trajectory of world trade relative to recent trends, the WTOI is not meant to be a short-term forecast, but it does provide an indication of trade growth in the near future.
Acute issues likely brought down some of the indices. The WTOI report said front-loading of imports ahead of anticipated U.S.-China tariffs might have sustained container shipping to some extent, which did show up in the latest Global Port Tracker, as the U.S. and China have a self-imposed March 1 deadline to avoid a 25 percent tariff threatened by the Trump administration. At the same time, technical problems in the German automotive sector may have contributed to weakness in automobile production and sales, the report noted.
“This sustained loss of momentum highlights the urgency of reducing trade tensions, which together with continued political risks and financial volatility could foreshadow a broader economic downturn,” the WTOI report said.
The WTO downgraded its trade forecast in September amid escalating trade disputes and tighter credit market conditions. Trade growth is forecast to slow to 3.7 percent in 2019 from an estimated 3.9 percent in 2018, “but these estimates could be revised downward if trade conditions continue to deteriorate,” the report said. “Nevertheless, greater certainty and improvement in the policy environment could bring about a swift rebound in trade growth.”