GENEVA (Oct 5): Global merchandise trade will slow next year as “multiple shocks” ranging from Russia’s war in Ukraine, high energy costs in Europe, and US monetary policy tightening raise manufacturing costs and squeeze households, the World Trade Organization (WTO) said.

The Geneva-based institution said it expects trade growth to fall sharply in 2023 to 1%, compared with its previous forecast of 3.4%, according to a report released on Wednesday. The WTO also raised its projection for growth in merchandise trade this year to 3.5%, up from its previous projection of 3%.

The WTO’s forecasts — which are in line with International Monetary Fund and Organisation for Economic Co-operation and Development projections — mark a major deceleration from last year’s 9.7% growth in global trade. That was fuelled by consumer purchases of household items while travel and other service industries were limited during the depths of the Covid-19 pandemic.

“We’re looking at a situation in which a global slowdown is going to squeeze households even more, squeeze businesses, and we may be edging into a recession,” WTO director general Ngozi Okonjo-Iweala said in an interview with Bloomberg Television. “It’s looking quite grim — a little more grim than we had thought.”

In addition to the economic risks facing the US and Europe, the WTO said poor nations stand to suffer, too. “The growing import bills for fuels, food, and fertilisers could lead to food insecurity and debt distress in developing countries,” it said.

Among the other potential drags: central banks raising interest rates too high or acting too late on inflationary pressures that “may have peaked”, the WTO said.

‘Overshooting’ risk

“Overshooting on tightening could trigger recessions in some countries, which would weigh on imports,” it said. “Alternatively, central banks might not do enough to bring inflation down, possibly necessitating stronger interventions in the future.”

The WTO acknowledged the trade-offs governments are grappling with to bring soaring prices down.

“Policymakers are confronted with unenviable choices as they try to find an optimal balance among tackling inflation, maintaining full employment, and advancing important policy goals such as transitioning to clean energy,” Okonjo-Iweala said in a news release.

She cautioned against a retrenchment in global supply chains, saying such moves will only worsen inflationary pressures and slow economic growth. “What we need is a deeper, more diversified, and less concentrated base for producing goods and services,” Okonjo-Iweala said.

A slowdown in trade poses challenges for logistics industries such as container shipping, where the biggest players posted record profits in recent quarters because of sky-high ocean freight rates. Some of them are already adjusting their businesses to account for lower volumes.

The world’s largest container carrier, Geneva-based Mediterranean Shipping Co, last week announced the suspension of a transpacific service and cited “significantly reduced demand for shipments into the US West Coast during the past weeks”.

by Bryce Baschuk/Bloomberg. October 05, 2022 21:40pm

Source: The Edge Markets. https://www.theedgemarkets.com/article/epf-investing-development-preleased-logistics-hub-klang. 8 October 2022.

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