The World Trade Organization reports that world trade growth declined in 2007 and may slow even further in 2008. According to a recent WTO press release, global trade grew by 5.5 percent last year, down from 8.5 percent in 2006, and may increase by only 4.5 percent this year. The latter figure reflects an expected 1.1 percent gain for major developed markets and over 5 percent for developing countries. The WTO attributes the slowdown to a sharp economic deceleration in key developed countries that is being only partially offset by continuing strong growth in emerging economies.
“These are uncertain and troubling times for the global economy,” said WTO Director-General Pascal Lamy. “To date, the financial market turmoil, significant price surges and the slow-down of developed economies have not led to a disruption of trade. But protectionist pressures are building as policymakers seek answers to the problems that confront us. More than ever we must reinforce our global trading system with rules that are more transparent, predictable and equitable.” Lamy stated that concluding the Doha Round is “the best way” to reinforce the global trading system to promote economic stability and development.
Trade Slowed in 2007. The slowdown in economic activity in developed countries was the major factor in the reduced expansion of global trade in 2007. For example, gross domestic product grew by only 2.2 percent in the U.S., 2.1 percent in Japan and 2.8 percent in the European Union. This deceleration lowered global economic growth to 3.4 percent from 3.7 percent, roughly the average rate recorded over the last decade. There was no letup in economic expansion in Central and South America, Africa, the Middle East and developing Asia, however, and the approximately 7 percent growth in these regions was nearly three times the rate recorded in the developed regions.
Lower import growth was observed in 2007 in North America, Europe, Japan and the net oil importing developing countries in Asia. This downward trend outweighed the higher import growth observed in Central and South America, the Commonwealth of Independent States (the former Soviet Union), Africa and the Middle East. It is estimated that the developing countries as a group accounted for more than half of the increase in world merchandise imports in 2007.
Boosted by a sharp rise in commodity prices, developing economies and the CIS region also maintained or strengthened their expansion of output in 2007, contributing more than 40 percent of world output growth. Developing countries’ share of world merchandise trade (exports and imports) reached a record 34 percent in 2007. Further, the favorable investment climate maintained in developing regions and the CIS more than offset the adverse effects of financial market turbulence, especially that arising from the U.S. subprime market crisis in the second half of 2007.
China and India especially continued to report high economic growth. China’s merchandise trade expansion remained strong in 2007 as lower export growth to the U.S. and Japanese markets was largely offset by higher export growth to Europe and a surge in shipments to the net oil exporting regions. Despite a booming domestic economy, weaker demand in some of its major export markets and a moderate real effective appreciation of its currency, China’s import growth continued to lag behind export growth.
Prospects Uncertain for 2008. Recent developments cloud the near-term prospects for the world economy, including widely held expectations that the U.S. is heading into a recession, weaker demand growth in both Europe and Japan, a rise in inflation and depressed global stock markets. On the other hand, strong output and trade growth are predicted in the developing countries and the CIS.
Domestic demand in the U.S. stagnated in the fourth quarter of 2007 and may shrink in the first half of 2008. Imports of goods and services are also likely to decrease further during that time. Exports, however, are expected to grow, sustained by excess capacity in the U.S. economy caused by slow domestic demand. In the EU, economic growth is expected to register just over one percent.
Developing countries and the CIS are expected to record faster growth in imports than exports and to contribute more than half of global import growth in 2008. However, it is uncertain as to how long the developing countries can maintain a strong pace of economic growth in the face of sluggish demand in the major developed markets and rising inflationary pressures due to higher energy and food prices. The WTO does note that these regions’ reliance on developed markets for their exports has markedly decreased over recent years, which should help them maintain high investment and consumption levels even if there is some softening of commodity prices. Overall, it is expected that in 2008 GDP growth in developing countries and the CIS may be over five percent and import growth will exceed 10 percent.
World Trade/Interactive
