Trade to remain
subdued in 2013 as European economies continue to struggle: WTO
According
to World Trade Organization (WTO), world trade growth fell to 2% in 2012—
down from 5.2% in 2011— and is expected to remain sluggish in 2013 at
around 3.3% as the economic slowdown in Europe
continues to suppress global import demand.
Issuing a statement that threat of protectionism was greater now
than at any time since the start of global economic crisis, WTO warned that as
long as global economic weakness persists, protectionist pressure will build
and could eventually become overwhelming. WTO figures show that world trade
growth fell to 2% in 2012- down from 5.2% in 2011, and is expected to remain
sluggish in 2013 at around 3.3% as the economic slowdown in Europe
continues to suppress global import demand.
The abrupt deceleration of trade in 2012 was attributed to slow
growth in developed economies and recurring bouts of uncertainty over the
future of the euro. Flagging output and high unemployment in developed
countries reduced imports and fed through to a lower pace of export growth in
both developed and developing economies. The statement said that improved
economic prospects for the US
in 2013 should only partly offset the continued weakness in the EU, whose
economy is expected to remain flat or even contract slightly this year.
China ’s growth is expected to continue to
outpace other leading economies, cushioning the slowdown, but exports will
still be constrained by weak demand in Europe .
As a result, 2013 looks to be a near repeat of 2012, with both trade and output
expanding slowly, below their long-term average rates.
In 2012,
the dollar value of world merchandise exports only increased by 0.2% to US$18.3
trillion, leaving it essentially unchanged. The slower growth in the dollar
value of world trade compared to trade in volume terms is explained by falling
prices for traded goods. Some of the biggest price declines were recorded for
commodities such as coffee (–22 %), cotton (–42%), iron ore
(–23%) and coal (–21%), according to IMF commodity price
statistics.
The value
of world commercial services exports rose just 2% in 2012 to US$4.3 trillion,
with strong differences in growth rates across countries and regions. For
example, the US saw its
exports of commercial services climb 4% while those of
Germany dropped 2% and
France ’s tumbled 7%. On the
import side, several European countries recorded sharp declines, including
Italy (–8%), France
(–10%), Portugal
(–16%) and Greece
(–18%).
The trade
forecast for 2013 assumes 2.1% growth in world output at market exchange rates
(unchanged from 2012) based on a consensus of economic forecasters. Risks to
the forecast are firmly rooted on the downside and are mostly linked to the
sovereign debt crisis in Europe .
Accelerated
fiscal consolidation in the US
could also undermine the forecast if brinksmanship over budget negotiations
between the executive and legislative branches leads to miscalculation. As
always, unexpected events such as geopolitical tensions and natural disasters
could also intrude to disrupt trade. On a more positive note, some factors that
held back trade growth in 2012 may subside in 2013, including the recent
territorial dispute that soured trade relations between
Japan and
China .
Indicators
of production, business sentiment and employment in the first quarter of 2013
paint a mixed picture of current economic conditions. Purchasing
managers’ indices suggest that the euro-zone downturn may have
accelerated despite continued resilience in
Germany . At the same time, the
US recorded a strong rise in manufacturing,
Japan ’s production growth was less
negative, and China and the
Republic of
Korea showed modest improvements.
Unemployment
in the US
recently fell to its lowest level since before the economic crisis at 7.6%,
whereas the rate for the euro area stands at close to 12%. Together, these
indicators point to weak import demand in Europe
even as conditions gradually improve elsewhere. In light of the large weight of
the EU in world imports (32% in 2012 including trade within the EU, 15%
excluding it), this suggests slow growth for trade in the early part of 2013.
Warm regards,
Dr. S P Sharma
Chief Economist
