Source: First Financial
Recently, international forecasts and leading data on global trade have been released one after another.
Among them, the International Monetary Fund (IMF), the Organization for Economic Cooperation and Development (OECD), and the World Trade Organization (WTO), the three major international economic organizations, all predict that global trade flows will increase in 2024.
The WTO predicts that global commodity trade volume is expected to grow by 2.6% in 2024 and 3.3% in 2025.
The IMF also recently stated that at the beginning of this year, global economic activity and world trade have consolidated, and it is expected that global trade volume will increase by 3.1% and 3.4% in 2024 and 2025, respectively, both of which are 0.1 percentage points higher than the forecast in April.
The WTO also stated that as inflation rates in developed economies decrease and incomes increase, real wages rise, and demand for goods (including imported goods) increases, it is expected that global trade growth will gradually rebound in 2024 and 2025. Meanwhile, the outlook for commercial service trade, especially digital delivery services, is also optimistic. The WTO emphasizes that trade in services, especially digital commerce and tourism, is growing at a faster rate.
Oxford Economics senior economist Slater told First Financial reporters that since 2011, the growth rate of service trade has been higher than that of goods trade, with annual growth rates of around 4% and 3% respectively. This unexpected performance will continue until 2022-2023, although it partially reflects a strong rebound in service trade from the sluggish levels during the pandemic.
Major institutions cautiously optimistic about the prospects of international trade
According to WTO data, global commodity trade volume will shrink by 1.2% in 2023, mainly due to factors in Europe, which has reduced global import growth by 1.7 percentage points and global export growth by 1.0 percentage point.
Entering 2024, we can see the global economy stabilizing. In the latest Global Economic Outlook report released by the World Bank, the institution predicts a global economic growth rate of 2.6% this year, higher than the 2.4% predicted in January, which will be the first stable growth of the global economy in three years.
The IMF also stated in its recently updated World Economic Outlook report that the global economy is expected to have a soft landing, with an estimated global economic growth rate of 3.2% this year.
The WTO's forecast for global economic growth this year is also relatively optimistic. At the same time, the WTO has also proposed that if its trade forecast for 2024 is realized, Asia will make the greatest contribution to trade growth in the next two years, contributing approximately 1.3 percentage points to the projected 2.9% global export growth rate in 2024.
In terms of imports, it is expected that global imports will grow by 2.3% in 2024, with the region contributing 1.9 percentage points, accounting for approximately 81%. The contribution of other regions to import demand is relatively small, but it is expected to be positive.
The WTO's outlook for 2025 is currently more optimistic, with all regions contributing to import and export growth, although the WTO also warns that the uncertainty of long-term forecasts is much greater. These risks include the rise of trade protectionism, escalating geopolitical tensions and conflicts, commodity price shocks, and climate related weather events.
The Central Bureau of Statistics (CPB) of the Netherlands recently released the latest global goods statistics data for the first five months of 2024. The data shows that the global import volume of goods in the first five months of 2024 is basically the same as the same period last year.
The Oxford Economics Institute's survey based indicators (consisting of the export portion of purchasing managers' index surveys) have weakened again in recent months, consistent with the previous trend of goods trade declining at a rate of about 1% per year.
The Oxford Economics Institute stated that due to the indicator leading hard data by about three months, this indicates that trade weakness may continue until the fourth quarter of 2024. This means that there is a downside risk to its baseline forecast of a 2% increase in world goods trade this year.
Some of these trade indicators look optimistic, especially the year-on-year increase of 16% in air cargo volume in June. But this is likely due to the obstruction of sea transportation in the Red Sea, where air transportation has replaced sea transportation, "Slat said. Another worrying signal comes from industrial product prices: since May, industrial product prices have decreased by about 5%, only 1% higher than a year ago. Copper and iron ore prices have sharply declined from recent highs.
Structural issues may lead to a slowdown in world trade
The Oxford Economics Institute believes that there is currently a cyclical weakness in global goods trade in certain regions.
Among them, the import volume growth in Europe is particularly weak, reflecting the slow economic growth there. Given Europe's weight in world trade, this is a significant global drag, "Oxford Economics said in a report." Trade weakness is also evident in Japan and some emerging regions, particularly in Latin America, the Middle East, and Africa
The Oxford Economics Institute suggests that although short-term cyclical factors are important, the main problems in world trade in goods seem to be structural. The most obvious indicator is the change in the ratio of the growth of world trade in goods to the growth of world gross domestic product. For most of the time since World War II, the growth rate of trade in goods has been about 1.5 times that of gross domestic product (GDP). But since the global financial crisis in 2008, this trade elasticity has significantly declined and there is no sign of a rebound The institution stated.
According to the latest estimates from Oxford Economics, trade elasticity is continuing to decline and has dropped to levels below 1, which means that world GDP is growing by 1%, while world trade in goods is only growing by 0.8% -0.9%. The current trade elasticity is lower than the level of the previous significant downturn in the 1980s, and has never reached its current level since the Great Depression in the 1930s.
The Oxford Economics Institute stated that without the weakness of trade elasticity, the world trade volume would be much higher. We estimate that if trade elasticity remains at 1.9 times the GDP growth rate (i.e. the level before the global financial crisis), then based on the actual trajectory of world GDP growth, global goods trade in 2023 will be 35% higher than actual growth, "Slater explained.
The Oxford Economics Institute believes that there may be several factors contributing to the decrease in goods trade elasticity relative to GDP. These factors include the shift of the world trade structure towards goods with lower income elasticity, the reaching of the limit of international production differentiation, and so on. The institution also emphasized that another important factor behind the structural weakness of trade, which can also be said to be an increasingly important factor, is protectionism and other distorted government policies.
Indeed, the total amount of trade restriction measures continues to increase. The latest Global Trade Warning report released by the WTO shows that in the past few years, new restrictive measures have sharply increased, including in the service industry.
According to WTO data, the number of such measures in 2023 will be five times that of 2015, and it is evident that the number will further increase significantly in 2024. Similarly, the WTO has found that the cumulative import restriction measures taken since 2009 now cover 12% of G20 imports, compared to only 4% in 2015. Most of these measures are non-tariff barriers, and subsidies and other industrial policy measures are also increasing.
The difference between the actual level of global trade in recent years and the level we expect based on historical trade elasticity is likely to be largely caused by such restrictive measures, "said the Oxford Institute for Economic Research
According to relevant calculations, after implementing at least one non-tariff trade barrier, bilateral imports will decrease by 12%. According to data from global trade agreements, we estimate that there have been approximately 3900 non-tariff barriers in effect worldwide since 2009, equivalent to about 39% of tariff lines. Roughly speaking, these non-tariff barriers could reduce world trade by about 5%, "the agency said.
However, a potential positive structural factor in global trade is the increasing trade and tradability of the service industry. Oxford Economics believes that overall, service trade is less susceptible to certain structural factors.
(This article is from First Financial)