Trade tensions, political risks and financial volatility will continue to pressure global trade, and trade weakness is likely to extend into the first quarter of 2019, the World Trade Organization (WTO) cautioned.
The global trade watchdog’s latest World Trade Outlook Indicator (WTOI) was 96.3, the weakest since March 2010 and below the baseline value of 100 for the index, signalling below-trend trade expansion into the first quarter. Readings of 100 indicate growth in line with medium-term trends; those greater than 100 suggest above-trend growth, while those below this level show below-trend growth.
“The simultaneous decline of several trade-related indicators should put policy makers on guard for a sharper slowdown should the current trade tensions remain unresolved,” the organisation said.
The WTO combines several component indices of trade-related data into a single composite index that anticipates turning points in world merchandise trade volume. These are export orders from major economies, air freight, container throughput, automobile production, electronic components and agricultural raw materials.
As per the indicator, weakness in the overall index was driven by steep declines in the component indices, which appear to be under pressure from heightened trade tensions. “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,” WTO said.
The indicator analysis shows that temporary factors may have influenced some of the indices. Front-loading of imports ahead of anticipated US-China tariffs may have sustained container shipping to some extent, while technical problems in the German automotive sector may have contributed to weakness in automobile production and sales.
The organisation had downgraded its trade forecast last September amid escalating trade disputes and tighter credit market conditions. Trade growth is currently forecast to slow to 3.7 per cent in 2019 from an expected 3.9 per cent in 2018, but “these estimates could be revised downward if trade conditions continue to deteriorate”, it cautioned.
It added that the 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.
Nevertheless, WTO says, greater certainty and improvement in the policy environment could bring about a swift rebound in trade growth.