World trade gets a downgrade

World Trade Organization (WTO) has now revised its 2016 estimate to just 1.7%, and its 2017 prediction has been revised downwards from 3.6% to a range of 1.8% to 3.1%. This is attributed to lower GDP and trade growth in developing countries (including China and Brazil), and North America, where the WTO notes import growth is now slowing.

“Over the long term trade has typically grown at 1.5 times faster than GDP, though in the 1990s world merchandise trade volume grew about twice as fast as world real GDP at market exchange rates. In recent years however, the ratio has slipped towards 1:1, below both the peak of the 1990's and the long-term average”.

WTO trade growth estimates range from 1.7% to 2.9% for developed countries and from 1.9% to 3.4% for developing economies in 2017. On the import side, developed countries could see trade growth of between 1.7% and 2.9% while developing countries expand by between 1.8% and 3.1%.

“A number of reasons have been advanced to explain the decline in the ratio of trade growth to GDP growth in recent years, including the changes in the import content of demand, absence of trade liberalization, creeping protectionism, a contraction of global value chains (GVCs), and possibly the increasing role of the digital economy and e-commerce, but all have likely played a role”.