Interest rate increases are already hitting the global economy hard. The World Trade Organization (WTO) has drastically reduced its forecast for global trade growth from 1.7% to 0.8%. This rate is well below last year’s 3%. The Geneva-based organization attributes this decline to several factors, but emphasizes that the interest rate increases are particularly felt in the manufacturing sectors of the United States and the European Union, while inflation remains entrenched in major economies and hopes for strong inflation The recovery in China is slowing due to tensions in the real estate markets. The institute forecasts a 3.3% increase in stock markets next year.
The WTO has been warning of a slowdown in global trade for months, but its calculations point to an increasingly severe deterioration. Although the most important economies – with exceptions such as Germany – survived the recession, world trade already suffered from the sharp slowdown in the first half of the year. And this setback was very widespread, affecting a large number of countries and goods, from industrial products to textiles. “The slowdown in trade expected in 2023 is worrying as it adversely affects the living standards of people around the world,” said WTO Director-General Ngozi Okonjo-Iweala.
World trade began to slow down at the end of last year. However, exports in the first half of the year recorded a rapid increase in North America (+5.4%), followed by South America (+1.4%), Africa (+0.9%) and Europe (+0.5%). However, they declined in Asia (-2.3%) and the Russia and Central Asia region (-3.5%). However, for this second semester, the WTO predicts that foreign sales will recover and those in Europe will fall into negative territory. During the same period, imports grew primarily in Russia and Central Asia (33.7%) and in the Middle East (12.2%). Instead they retreated to Europe, Asia and North America. Once again, the WTO assumes that foreign purchases on the old continent will remain weak.
The WTO identifies a variety of factors that explain this decline. These include, among other things, high inflation and the central banks’ struggle to raise interest rates, which are expected to remain at high levels for a long time. But there is more: China’s mediocre growth, the appreciation of the dollar or geopolitical issues such as the war in Ukraine or tensions between Washington and Beijing. There is another factor: the growing trend towards fragmentation of world trade into blocs. The WTO is cautious here: According to the report published on Thursday, the organization sees no underlying trend of “broad deglobalization,” but does see “signs” of lifting the blockades for geopolitical reasons.
“We are actually seeing some signs that the trade fragmentation data is related to geopolitical tensions. “Fortunately, we have not yet reached a high level of deglobalization,” said WTO Chief Economist Ralph Ossa. According to the organization, goods production still occurs through extensive global supply chains, but these may have already lost depth.
The value of trade in goods also fell by 5% in the first half of the year compared to the same period last year, mainly impacted by chemical products, iron and steel, telecommunications equipment and textiles. The outlook for next year is better, but the WTO is cautious. “Positive growth in export and import volumes should resume in 2024, but we must remain vigilant,” Ossa added.
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