In Depth

WTO reports sharp downturn in global trade forecasts

Slowdown blamed primarily on US-China trade war, as well as Brexit and changes in monetary policy

The World Trade Organization cut its global trade forecasts yesterday, blaming political uncertainty around the US-China trade war, the threat of a no-deal Brexit and shifting monetary policy.

The WTO said in a statement that it expected the total volume of traded goods to rise 1.2% globally this year - less than half the 2.6% increase it had forecast in April this year. It also cut the 2020 forecast from 3% to 2.7%.

“Trade conflicts pose the biggest downside risk to the forecast but macroeconomic shocks and financial volatility are also potential triggers for a steeper downturn,” Director-General Roberto Azevêdo said in the statement.

“The darkening outlook for trade is discouraging but not unexpected… trade conflicts heighten uncertainty, which is leading some businesses to delay the productivity-enhancing investments that are essential to raising living standards," wrote Azevêdo, who suggested that further tariffs “could produce a destructive cycle of recrimination”.

Chad Bown, senior fellow at the Peterson Institute of International Economics, agrees that uncertainties surrounding the US-China trade war are the leading factor in the global slowdown.

“Rather than bet wrong on the policies of someone like President Trump, some companies are putting off investment decisions. Others are being forced to reckon with the consequences of higher costs,” he said.

The BBC quotes analysts who say that a “swift resolution to many of the trade conflicts was unlikely, pointing to previous trade disputes that often lasted years”.

"History suggests it can take a long time for trade conflicts to end and for tariffs to be removed, even for smaller conflicts that go through the official channels," analysts for Goldman Sachs wrote in a report issued last week.

–––––––––––––––––––––––––––––––For a round-up of the most important business stories and tips for the week’s best shares - try The Week magazine. Get your first six issues free–––––––––––––––––––––––––––––––

Talks between the US and China are scheduled to resume in Washington later in October, aimed at putting a stop to - or even rolling back - some of the tariff hikes. 

Later on Tuesday, a closely watched gauge of American manufacturing revealed that factories had slowed in September, marking the second straight month of decline,” reports The New York Times. “The reading on the Institute for Supply Management’s manufacturing index was the lowest since June 2009, the month that marked the official end of the Great Recession.”

US President Donald Trump, who has a long-standing disagreement with his central bank over monetary policy, took advantage of another opportunity to pile pressure on Federal Reserve chair Jay Powell to reduce interest rates.

However, writes Chris Giles in The Financial Times, “Manufacturing activity has been weakening across the world since Mr Trump began to ramp up trade tensions in early 2018 — regardless of currency movements.”

“The WTO also highlighted a hard, no-deal Brexit as another potential threat to trade levels, especially in Europe,” writes Sergei Klebnikov in Forbes. “And with ongoing uncertainty over different central banks’ monetary policy, too, macroeconomic shocks and financial volatility were listed as “potential triggers for a steeper downturn.”

Recommended

Is China capitalist?
Portraits of President Xi Jinping and the late Mao Zedong
Today’s big question

Is China capitalist?

What next for Barbados as it becomes a republic?
Prime Minister Mia Mottley on stage
In Depth

What next for Barbados as it becomes a republic?

Shared ownership: how the home buying scheme works
UK housing
Pros and cons

Shared ownership: how the home buying scheme works

The race to test if vaccines hold up against Omicron
Moderna lab
Behind the scenes

The race to test if vaccines hold up against Omicron

Popular articles

Woman diagnosed with ‘climate change’
Humber Bay Arch Bridge in Toronto
Stranger than fiction

Woman diagnosed with ‘climate change’

Vladimir Putin and his mysterious love life
Vladimir Putin and his now ex-wife Lyudmila Putina
Profile

Vladimir Putin and his mysterious love life

Trump ‘upset his son won’t say he loves him’
Donald and Barron Trump
Tall Tales

Trump ‘upset his son won’t say he loves him’

The Week Footer Banner