As the world continues to struggle with the consequences of high inflation, energy crises, war in Europe and historically tight monetary policy from developed economies, the World Trade Organization (WTO) slashed its expectations for trade growth in 2023 by more than two-thirds on Wednesday.
While Europe, the U.S. and China were getting hit by these factors in different ways, the end result is that all are expected to have reduced demand for imports, the international trade regulator reported in a press release. This hit to demand from major developed markets is expected to squeeze growth in trade volume from an April estimate of 3.4% down to 1.0%.
“The global economy faces a multi-pronged crisis,” said WTO Director-General Ngozi Okonjo-Iweala, according to The Wall Street Journal. “The picture for 2023 has darkened considerably.”
The just-released @wto report confirms what many other data readings have been suggesting:
The global #economy is slowing at a faster rate than many expected#WTO‘s downward revision for projected 2023 trade growth is particularly notable:
1.0% increase compared to the prior 3.4% pic.twitter.com/qxqLnQQNaz— Mohamed A. El-Erian (@elerianm) October 5, 2022
In addition to a weakening forecast for trade growth, the WTO’s prediction for global GDP growth in 2023 fell by about one-third, from 3.3% to 2.3%. The WTO notes that its initial estimates in April were “overly optimistic,” particularly regarding the long-term impact of the Russo-Ukrainian War.
Should analysts be surprised by a turn for the better, trade growth could get as high as 4.6%. But in the event of downsides, instead of seeing growth, trade volumes could decline by 2.8%, the WTO reported.
There is some hope that slowdowns in trade might help ease inflation, as declining freight costs put downward pressure on supply chains, the WSJ reported. The impact of inflation in the supply chain was reflected in September by an $800 million expected profit hit from FedEx announced two weeks ago, as well as a rash of Amazon warehouse closures and inventory troubles for retailers that saw them storing excess inventory in shipping trucks to save on warehouse space.
The Federal Reserve has been consistent in its message that the battle against inflation is likely to continue through to 2023, a sentiment echoed as recently as Wednesday by Federal Reserve Board Governor Philip Jefferson. There is a chance inflationary pressures have peaked, as a slowdown in global demand drives down prices, the WTO reported.
“Policymakers are confronted with unenviable choices as they try to find an optimal balance among tackling inflation, maintaining full employment, and advancing important policy goals such as transitioning to clean energy,” Okonjo-Iweala said in the press release. “Trade is a vital tool for enhancing the global supply of goods and services, as well as for lowering the cost of getting to net-zero carbon emissions.”
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