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Global goods trade will slow next year as ‘multiple shocks’ ranging from Russia’s war in Ukraine, high energy costs in Europe and tighter US monetary policy raise manufacturing costs and squeeze households , said the World Trade Organization.
The Geneva-based institution said it expects trade growth in 2023 to fall sharply to 1%, from its previous forecast of 3.4%, according to a report released on Wednesday. The WTO also raised its projection for merchandise trade growth this year to 3.5%, up from its previous projection of 3%.
The WTO forecast – which is in line with IMF and OECD projections – marks a major deceleration from last year’s 9.7% growth in world trade. This was fueled by consumer purchases of household goods, while travel and other service industries were constrained at the height of the Covid pandemic.
“We are seeing a situation where a global slowdown is going to squeeze households even more, squeeze businesses and we could be heading into a recession,” WTO Director-General Ngozi Okonjo-Iweala said in an interview with Bloomberg Television. “It looks quite spooky – a little more spooky than we thought.”
In addition to the economic risks facing the United States and Europe, the WTO said poor countries also risk suffering. “Rising import bills for fuels, food and fertilizers could lead to food insecurity and over-indebtedness in developing countries,” he said.
Other potential brakes include central banks raising interest rates too much or acting too late on inflationary pressures that “may have peaked”, the WTO said.
Risk of “overshoot”
“Excessive tightening could trigger recessions in some countries, which would weigh on imports,” he said. “Alternatively, central banks may not be doing enough to bring inflation down, which may require stronger interventions going forward.”
The WTO has recognized the trade-offs governments face to bring down soaring prices.
“Policymakers face some unenviable choices as they try to strike the optimal balance between fighting inflation, maintaining full employment, and advancing important policy goals like the clean energy transition. “, Okonjo-Iweala said in a press release.
She warned of a pullback in global supply chains, saying such moves will only add to inflationary pressures and slow economic growth. “What we need is a deeper, more diverse and less concentrated base to produce goods and services.” says Okonjo-Iweala.
A slowdown in trade poses challenges to logistics industries such as container shipping, where the biggest players have posted record profits in recent quarters due to exorbitant ocean freight rates. Some of them are already adapting their activities to take account of the drop in volumes.
The world’s largest container carrier, Geneva-based Mediterranean Shipping Co., announced the suspension of trans-Pacific service last week and cited “significantly reduced demand for shipments to the US West Coast in over the last few weeks”.
(Adds a chart and commentary from the interview in the fourth paragraph.)
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