JEDDAH/GENEVA – The World Trade Organization (WTO) has slashed its 2012 global trade outlook, citing the eurozone debt crisis and weak growth in the US and China as key factors behind the downgrade. Global trade is now expected to grow 2.5 percent in 2012 compared with a previous forecast of 3.7 percent, the WTO said in a statement Friday. It also cut its global trade growth outlook for next year to 4.5 percent from 5.6 percent. “The global economy has encountered increasingly strong headwinds since the last WTO Secretariat forecast was issued," the WTO said. “Output and employment data in the United States have continued to disappoint, while purchasing managers' indices and industrial production figures in China point to slower growth in the world's largest exporter. “More importantly, the European sovereign debt crisis has not abated, making fiscal adjustment in the peripheral euro area economies more painful and stoking volatility." Moreover, the WTO's projected 3.7 percent growth rate for world merchandise trade in 2012 is below the long-term average of 6.0 percent for 1990-2008, and it is even below the average over the last 20 years including the period of the trade collapse (5.5 percent). Should it come to pass, the baseline forecast for 2012 and 2013 would not bring the volume of world trade any closer to its pre-crisis trend. In fact, the gap should grow larger as long as the rate of trade expansion continues to fall short of earlier levels. In April, the WTO had warned that world trade growth, which slowed to 5.0 percent in 2011 after a big rebound of 14.0 percent in 2010, would weaken again this year. Director-general Pascal Lamy called for more to be done to boost global growth, on top of recent measures to buy up government bonds announced by the central banks of the United States, Europe and Japan. More than three years have passed since the trade collapse of 2008-09, but the world economy and trade remain fragile. The further slowing of trade expected in 2012 shows that the downside risks remain high. We are not yet out of the woods," Lamy said. “The WTO has so far deterred economic nationalism, but the sluggish pace of recovery raises concerns that a steady trickle of restrictive trade measures could gradually undermine the benefits of trade openness. It is time to do no harm. WTO members should turn their attention to revitalizing the trading system and to ensuring such a scenario does not materialize." “In an increasingly interdependent world, economic shocks in one region can quickly spread to others," he said in the statement. “Recently announced measures to reinforce the euro and boost growth in the United States are therefore extremely welcome. But more needs to be done. We need a renewed commitment to revitalize the multilateral trading system which can restore economic certainty at a time when it is badly needed." The WTO's revised projections for 2012 came as data showed global trade volume grew just 0.3 percent in the second quarter, significantly slower than the 1.2 per cent seen in the previous three months. Lamy, speaking at a press conference in Singapore, said the WTO's revised trade outlook should not come as a surprise given the strains facing the global economy. “The main reason for growth slowing down is being of course Europe where growth is slowing. But not only Europe, we also know that US is lower than expected," he said. “So (it is) a substantial downward revision but in many ways unsurprising given what we know about the world economic outlook and the fact that world growth is slowing down more than we expected some months ago," he added. WTO economists are forecasting a slowdown in merchandise trade volume growth to 3.7 percent in 2012, with 2.0 percent export growth anticipated for developed economies and 5.6 percent for developing economies (including the Commonwealth of Independent States). On the import side, the WTO is projecting 1.9 percent growth for developed countries and 6.2 percent for developing economies and CIS. Figures for 2013 are provisional estimates based on assumptions about the longer term trajectory of gross domestic product (GDP, total production in a country) and should be interpreted with an appropriate degree of caution. World trade volume for that year is expected to recover to 5.6 percent. Exports of developed and developing economies should increase by 4.1 percent and 7.2 percent, respectively. On the import side, developed economies should record growth of 3.9 percent while developing economies should advance 7.8 percent. Overall, risks to the current forecast are firmly on the downside. A deeper recession in the euro area would increase social transfer payments, deprive cash strapped governments of much needed revenue, and cast doubt on the ability and willingness of countries to service their debts. This would drive up borrowing costs for countries with challenging finances and reinforce any downturn. Rising commodity prices also constitute a risk factor, but their distributional effects are more ambiguous. High oil prices in particular constrain economic activity and are associated with recessions in importing countries. However, buoyant prices also boost the export earnings of resource producers, which are disproportionately emerging and developing economies. Finally, geopolitical risks and natural disasters are always a possibility, although their timing and location is inherently unpredictable, WTO said. – SG
