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WTO forecasts 9% fall in global trade

March 23, 2009
By Frances Williams, Financial Times

Collapsing global demand will send the volume of world goods trade plunging by 9 per cent this year, the largest drop since the second world war, the World Trade Organisation predicted on Monday. This compares with anaemic growth of 2 per cent in 2008, reflecting the sharp downturn in the global economy late in the year, and 6 per cent in 2007.

Pascal Lamy, WTO director-general, urged leaders of the Group of 20 countries who will meet in London next week not to raise trade barriers, saying this would hinder recovery efforts. “Many thousands of trade-related jobs are being lost. Governments must avoid making this bad situation worse by reverting to protectionist measures,” he said.

WTO economists said greater global interdependence and the proliferation of global supply chains meant trade tended to grow faster than output in good times and fall further in bad times. New forecasts about to be published by the IMF are expected to show negative global output growth this year, the first fall in world production since the 1930s.

The slump in trade has been exacerbated by the fact that all regions of the world are in recession simultaneously, the WTO said. The scarcity of trade finance and growing protectionism were also factors. “The use of protectionist measures is on the rise,” Mr Lamy said. “The risk is increasing of such measures choking off trade as an engine of recovery.”

The WTO is due to release its latest assessment of protectionist actions by governments later this week, ahead of the G20 summit in London on April 2, which Mr Lamy will attend. In January, the WTO highlighted bank bail-outs and help for the car industry in several countries but said the impact on trade had yet to be felt.

Industrialised country exports are projected to slide in volume terms by 10 per cent this year, compared with a drop of 2-3 per cent for developing countries, the WTO said. Timing of the recovery would depend on the effectiveness of fiscal stimulus plans by governments, now amounting to more than 3 per cent of world production.

But the organisation warned that there were still “substantial downside risks” to the forecasts from further adverse developments in financial markets or a surge in protectionism. The value of world merchandise trade, which re-flects price and currency changes, jumped 15 per cent to $15,800bn (£10,900bn) last year, partly reflecting a stronger US dollar. The share of developing countries rose to a record 38 per cent, helped by booming Chinese exports.

Germany remained the biggest exporter in 2008, but China was only slightly behind in second place, followed by the US, Japan and the Netherlands. Taking the European Un-ion as a single entity, China was still in second place with 12 per cent of world exports behind the EU with 16 per cent. On this basis, Russia, which has been trying for years to join the WTO, emerged last year as the world’s fifth largest exporter with 4 per cent of the global total.