Slowing economies in China, Brazil and other emerging nations and lower oil prices are among the factors causing the World Trade Organization to lower its forecast for world trade growth in both 2015 and 2016.
WTO expects world merchandise trade volume to increase 2.8% in 2015, down from its previous estimate of 3.3%. The trade organization also lowered its 2016 estimate slightly, from 4.0% to 3.9%. The estimates remain well below the historic average of 5% growth over the 1995 to 2015 period.
If its projections hold, WTO noted, 2015 will “mark the fourth consecutive year in which annual trade growth has fallen below 3% and the fourth year where trade has grown at roughly the same rate as world GDP, rather than twice as fast, as was the case in the 1990s and early 2000s.”
While global output is expanding at a moderate rate, WTO warned that risks to the world economy are “increasingly on the downside.” Those risks include further slowdowns in emerging economies, possible financial disruptions from an interest rate increase by the U.S. Federal Reserve and unanticipated costs associated with the massive migration flow to Europe from the Middle East.
The downward revisions reflect a number of factors that weighed on the global economy in the first half of 2015, including falling import demand in China, Brazil and other emerging economies; falling prices for oil and other primary commodities; and significant exchange rate fluctuations.
Quarterly export growth of developed economies was essentially flat (-0.2%) in the first two quarters of 2015. Developing countries were in negative (‑1.9%) territory. The drop in exports was driven by weaker developing countries' imports (-2.2%) and stagnation in developed countries' imports (+0.1%), WTO explained.
Trade growth remains uneven across countries and regions. After a long period of stagnation, Europe bounced back with the fastest year-on-year export growth of any region in the second quarter at 2.7%, followed by North America (2.1%), Asia (0.6%), South and Central America (0.4%) and other regions (-1.0%, including Africa, the Commonwealth of Independent States and the Middle East).
Disparities between regional growth rates was stronger on the import side than on the export side, WTO noted, with positive growth of 6.5% in North America, 3.1% in Asia and 1.6% in Europe, and declines of 2.3% in South and Central America and 3.1% in other regions.
Looking at merchandise exports, WTO said shipments from developed economies should rise 3.0% this year and 3.9% next year. Developing economies' exports are expected to grow more slowly at 2.4% in 2015 and 3.8% in 2016. Imports of developed economies should increase at about the same rate in 2015 (3.1%) and in 2016 (3.2%). Imports of developing economies should show more robust growth, from 2.5% this year to 5.2% next year.
Asia was the subject of the sharpest drop in the export forecast, from the 5.0% growth expected back in April to 3.1% now. WTO said this was “mostly due to falling intra-regional trade as China's economy has slowed.” The downward revision to Asia on the import side was even stronger, from 5.1% to 2.6%, partly due to lower Chinese imports which were down 2.2% year-on-year in Q2 (non-seasonally adjusted data).
The product composition of China's merchandise imports suggests that some of the slowdown may be related to the country's ongoing transition from investment to consumption led growth, WTO stated. Large year-on-year drops in quantities of imported machinery (-9%) and metals (iron and steel -10%, copper ‑6%) were recorded in customs statistics for August, while strong increases were recorded for agricultural products including cereal grains (+130%) and oilseeds (+33%).
The import forecast for South and Central America in 2015 also saw a strong downward revision, to -5.6% from -0.5% in April. Much of this reduction can be attributed to adverse economic developments in Brazil, which has been simultaneously hit by a fiscal crisis, a financial scandal involving state-owned oil giant Petrobras and falling export prices. Brazil's merchandise imports in Q2 were down 13% year-on-year compared to the same period in 2014.
A rebound in imports of South and Central America is expected in 2016 as Brazil's GDP growth stabilizes and its imports start to recover, WTO forecast. Other countries in the region should also see imports accelerate as their economies pick up next year. The size of the rebound in 2016 is also partly explained by the fact that future growth will be proceeding from a lower base following the steep decline in 2015.
If the slowdown in emerging markets worsens, WTO warned that it could shave half a percentage point off global trade growth in 2015.