Global trade is set to reach almost 32 trillion dollar in 2022, but inflation has reversed some of the gains made in recent months, according to the latest analysis from the UN trade and development agency, UNCTAD.
Pointing out that global growth “turned negative” during the second half of 2022, the UN agency said that trade in goods and services is expected to reach 25 trillion dollars and seven trillion dollars respectively, by the end of the year.
It said that part of the decline in the value of international trade during the second half of 2022 is due to a decrease in the prices of primary products, especially energy. By contrast, the prices of internationally traded intermediate inputs and consumer goods have continued to increase during the same period, raising additional concerns about persisting global inflation. The decline in the value of global trade has been so far limited to goods. Trade in services has been more resilient, with its value continuing to rise during the second half of 2022. The ongoing trade slowdown is expected to worsen for 2023, the UNCTAD said.
The downturn began in the third quarter of the year, with goods trading about one percent lower than from March to May.
VALUES DIP DOWN
In its global trade update, UNCTAD said that although services actually increased by 1.3 per cent in the third quarter, both goods and services are expected to fall in value in the run-up to the end of the year.
Demand for foreign goods “proved resilient” through 2022, the trade and development update said, with trade volumes overall increasing by three per cent.
Trade volumes of East Asian economies have shown resilience, while South-South trade lagged during the third quarter.
Overall, “geopolitical frictions, persisting inflation, and lower global demand are expected to negatively affect global trade during 2023”, said UNCTAD in its report highlights.
NEGATIVE FACTORS
• Lower economic growth; Economic growth forecasts for 2023 are being revised downwards due to high energy prices, rising interest rates, sustained inflation in many economies, and negative global economic spillovers from the war in Ukraine.
• High prices of traded goods; persistently high-energy prices and the continued rise in the prices of intermediate inputs and consumers goods are expected to dampen demand for imports and to lead to a decline in the volume of international trade.
• Concerns of debt sustainability; the record levels of global debt and the increase in interest rates pose significant concerns for debt sustainability. The ongoing tightening of financial conditions is expected to further heighten pressure on highly indebted governments, amplifying vulnerabilities and negatively affecting investments and international trade flows.
POSITIVE FACTORS
- Improvements in the logistics of global trade; Ports and shipping companies have now adjusted to the challenges brought by the Covid-19 pandemic. New ships are entering service, and port congestion is being resolved. Freight and cargo rates are still higher than the pre-pandemic averages, but their trend is downwards.
- Trade agreements coming into fruition; Recently signed agreements such as the Regional Comprehensive Economic Partnership and the African Continental Free Trade Area, as well as a number of smaller trade agreements, should come to fruition and provide some momentum for international trade.
TRADE TRENDS IN THE MAJOR ECONOMIES
- Except for the Russian Federation, the trade in goods for all major economies was well above levels of one year ago. However, quarter-over-quarter rates reveal that these positive trends reversed for most economies in Q3 2022.
- In Q2 2022, the trade in services for most major economies was higher than in Q2 2021. Quarter-over-quarter growth rates indicate that these positive trends have weakened considerably in Q2 2022.
REGIONAL TRADE TRENDS IN Q3 2022
- In Q3 2022, the value of the global trade in goods was significantly above the levels of Q3 2021 for both developing and developed countries.
- Trade between developing countries (South-South) was about 13 per cent higher than in the same period of 2021. South-South trade excluding East Asian economies grew by 19 per cent.
- The decline in trade of Q3 2022 with respect to Q2 2022 was similar for developed and developing countries.
- When East Asian economies are excluded the more significant decline in developing countries’ trade is remarkable.