World merchandise trade volume is expected to grow just 3 per cent this year, down from the previous forecast of 4.7 per cent, and 3.4 per cent in 2023, though these figures could be revised given the uncertainty surrounding the conflict.
History teaches us that dividing the world economy into rival blocs & turning our backs on the poorest countries leads neither to prosperity nor to peace, WTO Director-General @NOIweala says in the #WTOForecast. Full report: https://t.co/MZMzwy5WdZ pic.twitter.com/sbAnmlZ461
— WTO (@wto) April 12, 2022
The Russian invasion began on 24 February and WTO said the most immediate impact of the war has been a sharp rise in commodity prices.
Shrinking supplies, higher prices
Both Russia and Ukraine are key suppliers of essential goods such as food, energy, and fertilizers, supplies of which are now threatened.
Grain shipments through Black Sea ports have also been halted, with possible dire consequences, particularly for poorer countries.
“Smaller supplies and higher prices for food mean that the world’s poor could be forced to do without. This must not be allowed to happen,” said Ngozi Okonjo-Iweala, the WTO Director-General.
More trade needed
The war is taking place as other factors impact global trade, including the latest COVID-19 lockdowns in China which are again disrupting maritime trade just as supply chain pressures appeared to be easing.
Ms. Ngozi Okonjo-Iweala urged governments to work with multilateral organizations like WTO to facilitate trade.
“In a crisis, more trade is needed to ensure stable, equitable access to necessities. Restricting trade will threaten the wellbeing of families and businesses and make more fraught the task of building a durable economic recovery from COVID‑19,” she said.
Estimating war’s impact
Given the scant data on the economic impact of the conflict, WTO economists have had to rely on simulations for their assumptions about global Gross Domestic Product (GDP) growth through 2023.
Their estimates capture the direct impact of the war, including destruction of infrastructure and increased trade costs; the impact of Russian sanctions, including blocking Russian banks from the SWIFT international banking payments system; and reduced aggregate demand in the rest of the world – in part due to rising uncertainty.
WTO said world GDP at market exchange rates should increase by 2.8 per cent this year, or 1.3 percentage points down from the previous forecast.
Output growth should rise to 3.2 per cent in 2023, “assuming persistent geopolitical and economic uncertainty”, which is close to the 3.0 per cent average rate for the period 2010-2019.
In the Commonwealth of Independent States (CIS) region — created after the dissolution of the Soviet Union in 1991, and which excludes Ukraine — GDP is expected to drop 7.9 per cent, leading to a 12 per cent decline in imports.
However, exports should increase by nearly five per cent as other countries continue to rely on Russian energy.
“If the situation were to change, we might see stronger export volume growth in other fuel producing regions,” said WTO.
Low merchandise trade growth
Given the current GDP assumptions, the agency has projected that merchandise trade volume growth this year could be as low as 0.5 per cent or as high as 5.5 per cent. Figures will be updated in October or earlier, if warranted.
World merchandise trade volume grew roughly twice as fast as world GDP in the two decades before the 2007-2008 global financial crisis. The ratio fell to around 1:1 on average in the wake of the crisis.
If the current forecast plays out, it suggests there will be no fundamental change in the relationship between trade and output.
“Risks to the forecast are mixed and difficult to assess objectively,” WTO said. “There is some upside potential if the war in Ukraine ends sooner than expected, but substantial downside risks could emerge if fighting persists for a long time or if the conflict escalates.”
Oil and natural gas
World fuel prices were already rising prior to the war. Last month, the benchmark price for crude oil was $118 per barrel, up 38 per cent from January, and more than 80 per cent year-on-year. Daily prices have moderated recently, from a peak of $128 per barrel on 8 March to $104 on 1 April.
Unlike oil prices, the cost of natural gas has diverged strongly across regions. In Europe – where many countries still rely on Russian supplies – the price rose 45 per cent between January and March, to $41 per million British thermal units (Btu). The price has remained relatively low in the United States, at roughly $4.9 per million Btu.
WTO said higher oil prices may reduce real incomes and import demand worldwide, while higher natural gas prices would probably have a greater impact in Europe.
Effect of sanctions
The trade forecast was released together with annual merchandise and commercial services trade statistics.
The volume of merchandise trade, measured by the average of exports and imports, rose 9.8 per cent in 2021, with the value growing 26 per cent to $22.4 trillion.
Commercial services trade, which includes the transport sector and covers container shipping and the passenger airline industry, was also up 15 per cent in 2021, reaching $5.7 trillion.
Though trade in the travel sector was positive overall, they figures remained weak, as COVID-19 restrictions were only partially eased during the year.
WTO said western sanctions on Russian businesses and individuals are likely to have a strong effect on commercial services.
“Prior to the pandemic, travel/tourism and air transport services were the largest traded services by Russia, accounting for 46 per cent of its exports and 36 per cent of its imports. These services, already hit hard by the pandemic, may be heavily affected by economic sanctions,” the agency said.