WTO: Global Trade Recovery Expected Amid Middle East Tensions, Monetary Policy Disputes

On October 11th, the World Trade Organization (WTO) released the latest edition of the "Global Trade Outlook and Statistics Report" (hereinafter referred to as the "Report"), predicting that the global volume of goods trade will grow by 2.7% in 2024, slightly higher than the previously forecasted 2.6%.

Global trade is expected to welcome a recovery. The report shows that the global volume of goods trade grew by 2.3% year-on-year in the first half of 2024, and it is expected to continue its recovery momentum in the second half of this year and in 2025. Calculated at market exchange rates, the global real Gross Domestic Product (GDP) growth rate is expected to stabilize at 2.7% for both 2024 and 2025.

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WTO Director-General Okonjo-Iweala stated in a declaration that the global trade is expected to gradually recover in 2024, but we remain vigilant about potential setbacks, especially the possibility of escalation in regional conflicts such as the Middle East. Countries directly involved may suffer the most severe impacts, while there may also be indirect effects on global energy costs and shipping routes.

As inflation cools in major countries, central banks in developed economies have begun to lower interest rates. At the same time, the decline in inflation rates can increase household real income, thereby promoting consumption, investment, and supporting the gradual recovery of global trade.

Therefore, the WTO pointed out in the report that after the global volume of goods trade shrank by 1.1% in 2023 due to inflation and interest rate hikes, the global goods trade rebounded in the first half of this year, and it will further moderately expand in the second half of this year and in 2025.

The report believes that in the short term, the growth prospects for global services trade are more optimistic than for goods trade. In recent years, due to the impact of the COVID-19 pandemic, the lifting of lockdown measures, and the Russia-Ukraine conflict, goods trade has experienced significant fluctuations. The volume of goods trade soared in 2021 and 2022, but it shrank last year. In the first half of this year, the volume of goods trade grew by 2.3% year-on-year, but the trade value only slightly increased by 0.1%, reflecting a rebound in the global goods trade enthusiasm, but there is a noticeable decline in the prices of imported and exported goods.

In contrast, services trade has shown a stable growth trend. In the first quarter of this year, the global services trade value grew by 8% year-on-year. Although the services trade statistics for the second quarter will be released in late October, preliminary data up to June indicate that the services trade is expected to maintain relatively strong growth in the second quarter.

At the same time, the WTO also pointed out potential growth risks.

The first is geopolitical conflict. The WTO pointed out that although the impact of the Red Sea crisis has been basically controlled, as the situation in the Middle East escalates, other routes may also be affected. Moreover, given the important position of the Middle East in the global oil supply, the interruption of energy supplies pushing up crude oil prices will also suppress the growth of economies and indirectly affect international trade.

The second is the risk brought by the uneven pace of global monetary policy. The report stated that the divergence of monetary policies in major economies and sudden changes in exchange rates may lead to financial turmoil, especially for developing countries facing increased debt repayment pressures. At the same time, the risk of economic growth slowing down due to too slow a pace of interest rate cuts in some countries, or the risk of inflation returning due to too fast a pace of interest rate cuts, are also risks to be vigilant about.Looking at the trade performance across various regions globally, the World Trade Organization (WTO) forecasts that this year, Asia's export volume growth will outpace other regions, with an increase of up to 7.4% in 2024. In the first half of this year, exports in the region have rebounded strongly, driven by major manufacturing economies such as China, Singapore, and South Korea, while Japan's exports remain stagnant.

Europe will be the only region to see a decline in trade volume this year. The report anticipates that Europe's export volume will decrease by 1.4% and import volume by 2.3% in 2024. The main drag on exports is attributed to Europe's automotive and chemical industries. WTO Chief Economist Ralph Ossa stated that for Europe, Germany is a significant part, and the decline in German automotive and chemical exports, especially organic chemicals and chemicals used in vaccine production, is a major concern.

South America is expected to rebound in 2024, recovering from the weak exports and imports experienced in 2023. North American trade is primarily driven by the United States, with an expected year-on-year increase of 2.1% in export volume and 3.3% in import volume. However, within the entire North American region, Mexico's import growth is even stronger.

It is worth noting that the WTO emphasized the growing importance of so-called "transit trade countries" in global supply chains and trade in its outlook, particularly Mexico and Vietnam, followed by India.

The WTO stated that if interest rate cuts in developed economies can stimulate stronger-than-expected economic growth without triggering inflation, there is still some potential for the forecast results to be higher.