Posted by

Sukhdeep Dhillon

06 Oct 2015

The World Trade Organisation (WTO) – the organisation that ensures trade flows as freely as possible - has lowered its forecast for world trade growth in 2015 to 2.8%, from 3.3% in April, and reduced its estimate for 2016 to 3.9% from 4%. These revisions reflect a number of factors that weighed on the global economy in the first half of 2015, including falling import demand in China, Brazil and other emerging economies; falling prices for oil and other primary commodities; and significant exchange rate fluctuations.

Recent trade growth

Data for the first half of 2015 came in below expectations with quarterly growth turning negative, averaging 0.7% in Q1 and Q2. Despite the quarterly declines in the first half of 2015, year-on-year growth in trade for the year to date remains positive at 2.3%.

Trade growth remains uneven across many countries and regions after a long period of stagnation - Europe recorded the fastest year-on-year export growth of any region in Q2 at 2.7%, followed by North America (2.1%), Asia (0.6%), South and Central America (0.4%).

Changes to the forecast

Asia had the strongest downward revision to its export forecast for 2015, from 5.0% to 3.1%. This is mostly due to falling intra-regional trade as China's economy has slowed. The downward revision to Asia on the import side was even stronger, from 5.1% to 2.6%, partly due to lower Chinese imports.

South and Central America’s import forecast in 2015 was lowered to -5.6% from -0.5%. Much of this is attributed to adverse economic developments in Brazil.  A rebound in imports across South and Central America is expected in 2016 as Brazil's GDP growth stabilises.

Outlook

If trends continue, 2015 will mark the fourth consecutive year in which annual trade growth has fallen below 3%. This will also mark the fourth year where trade has grown at approximately the same rate as world GDP, rather than twice as fast - as it has done in the 1990s and early 2000s.

Although global output is expanding at a moderate pace downside risks remain, which include: slowdowns in emerging and developing economies and the possibility of destabilising financial flows from an eventual interest rate rise by the US Federal Reserve (as explained in my previous blog: All eyes on 'US').

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